Posted by ft Editorial Staff | Dec 31, 2016 | Feature Articles, Forecasts, Laws and Regulations | 0

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

California’s real estate market continued on its long path to recovery and expansion in 2016. This article reviews some of the new laws real estate professionals need to be aware of for 2017, trends that took shape in the housing and mortgage markets in 2016 and a forecast for 2017.

New real estate laws in 2016

California real estate law is an ever-changing landscape. Dozens of new laws impacting the real estate profession were passed in 2016, and the most noteworthy laws are included below. To stay up to date on new laws, see first tuesday’s New Laws section.

New, gender-neutral language has made its way into the CalBRE lexicon. Beginning January 1, 2017, a CalBRE sales agent can refer to themselves as either a salesperson, salesman or saleswoman. [Calif. Business and Professions Code §10013]

New identification requirements will be required for real estate advertisements and purchase agreements.

The California legislature has clarified how brokers are to be identified on signs and advertisements requiring a responsible broker’s identity. Effective August 29, 2016, the broker may be identified by the:

• broker’s name under which they are licensed and do business; or
• both the broker’s name and CalBRE license number. [Bus & P C 10159.7]

Beginning January 1, 2018 — which gives real estate professionals a year to update their materials with the new requirements — licensees will need to provide their name, CalBRE license number, Nationwide Mortgage Licensing System (NMLS) ID number, if applicable, and their employing broker’s identity on advertisements and certain other materials. Read more here. [Bus & P C §10140.6]

Of interest to anyone who has been disciplined by the CalBRE, beginning January 1, 2018, CalBRE licensees may petition the CalBRE to remove the licensee’s disciplinary action from CalBRE’s public record’s page if:

• the disciplinary action has been posted for at least ten years;
• the licensee provides the CalBRE with proof they no longer pose a risk to the public; and
• the licensee pays a fee to the CalBRE with the petition, in an amount to be determined by CalBRE Regulations.

All disciplinary actions will remain on record with the CalBRE and continue to be shared with other licensing and regulatory agencies. [Bus & P C §10083.2]

CalBRE-licensed brokers and sales agents renewing their real estate license now need to fulfill an additional course requirement. The new requirement applies to agents and brokers with licenses that:

• expired on or after January 1, 2016; or
• have previously expired and are within the two-year renewal grace period.

These licensees will need to take either a(n):

• three-hour office management and supervision course; or
• eight-hour survey course which includes office management and supervision. [Bus & P C 10170.5]

Editor’s note—All first tuesday 45-hour continuing education (CE) course enrollments automatically include the mandated three hours of office management and supervision.

To stay up to date on changes at the CalBRE, see our CalBRE Watch page.

Legal aspects to watch in 2017

New legislation is introduced throughout the year in the California senate and assembly. Legislation pending at the end of 2017 includes:

• a tax deduction for amounts contributed to an individual’s homeownership savings account and a tax exclusion for interest income earned from money in this type of savings account [A.B. 53];
• the issuance of $3 billion in bonds to finance existing housing programs, infrastructure and affordable housing grant programs [S.B. 3];
• establishing a $75 fee on the recording of every real estate instrument to fund affordable housing developments. [S.B. 2]

To view the full list of pending legislation that may impact your real estate business, see our Pending Laws page.

Further — not a law change, but still important to our readers — the California Association of Realtors (CAR) found itself in hot legal waters in 2016.

PDFfiller, a digital document management company, has filed antitrust allegations against CAR, claiming CAR is guilty of:

• creating a form monopoly;
• unlawfully tying CAR real estate forms to zipForm® software;
• conspiracy in restraint of trade; and
• violating the Cartwright Act and the Sherman Antitrust Act.

This comes after CAR initially sued PDFfiller for copyright and trademark infringement by use and distribution of CAR forms. CAR has long restricted access to its form library to paying members, only. This exclusivity is why many real estate agents think they are required to be members of CAR (some brokers require it of their agents). However, CAR forms are not mandatory to use. In fact, Realty Publications, Inc. (RPI) publishes over 400 real estate forms that are fully legal for use in California. Read more here and search the full library of RPI forms — free to download — here.

At the time of this writing, PDFfiller and CAR were attempting to settle the dispute outside of court. Stay tuned to first tuesday in 2017 for the outcome.

Interest rates rise

The average 30-year fixed rate mortgage (FRM) rate in California rose from its four-year low of 3.37% in October to nearly 4.2% at year’s end. For a homebuyer with an average household income in California, this represents a loss of $37,000 in buyer purchasing power. In other words, buyers are now able to qualify for significantly less mortgage principal — or need to make up the difference with higher mortgage payments.

The 30-year FRM rate was at an all-time low in 2012, when it was 3.25%. It has remained relatively low since then — until the rapid increase experienced at the end of 2016.

Rates remained low for the past four years primarily due to global economic uncertainty. Facing a lack of safe investments elsewhere, U.S. and foreign investors turned to the safety of U.S. Treasuries. All these Treasury purchases kept Treasury rates low, and in turn FRM rates stayed low, too.

What caused the sudden rate increase in November 2016?

The unexpected election of a Republican caused bond market investors to shift their outlook for future interest rates. Rates tend to inch higher under Republican administrations, and the bond market is preparing for this by demanding higher rates now. To a lesser extent, expectations of the Federal Reserve (the Fed) acting to increase interest rates caused rates to rise, too. The Fed increased the target short-term rate from 0.25%-0.5% to 0.5%-0.75% in mid-December 2016 and projects further, gradual increases ahead.

Forecast — FRM rates will continue to rise going into 2017. But long-term rate movement is less certain. The rate increase might slow when the incoming government increases infrastructure spending. It also might slow if economic progress declines. Either way, don’t expect a return to historically low 30-year FRM rates anytime soon.

Home sales, prices slow

California year-over-year home sales volume was on an upward trend in 2014 through most of 2015. After year-over-year sales volume peaked at 17% in mid-2015, it reversed direction while still remaining positive through the first half of 2016.

The last few months of 2016 saw fewer home sales than the same time a year earlier. However, since the year started off with a higher (though declining) sales volume than 2015, the sum total of 2016 sales volume was level with 2015.

Home price movement tends to follow sales volume movement within 9-12 months — the delay is due to the “sticky price” phenomenon, when sellers continue to demand yesterday’s prices in today’s market. Therefore, while sales volume began to falter in mid-2015, home prices started to level off in mid-2016.

While fourth quarter (Q4) numbers aren’t in at the time of this writing, in Q3 2016 prices remained 9% higher than a year earlier in low-tier sales, 6% higher than a year earlier in mid-tier sales and 5% higher than a year earlier in high-tier sales.

However, on a month-to-month basis mid- and high-tier prices have displayed little to no upward movement in the second half of this year.

Forecast — When this slowing trend continues, prices will decline below their point a year earlier likely in mid- to late-2017— 9-12 months following the sales volume decline into negative territory.

Ahead for 2017

It’s been over a decade since the housing market went south, with sales volume dropping in 2006 and prices following in 2007. Since then, we’ve been in recession or recovery mode. 2017 will be no exception, and will likely to be another modest year for home sales.

When will the recovery turn into the next housing boom?

Obstacles to a sustainable recovery include:

• deregulation of mortgage lenders;
• rising mortgage rates;
• insufficient residential construction to meet the demand for housing in California’s urban areas; and
• home prices which have increased at a rate far higher than raises in income.

Deregulation of mortgage lenders is likely in 2017 and in the years to follow as the next administration makes its political mark. President-elect Trump has indicated he will take down the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2008, including dismantling the Consumer Financial Protection Bureau (CFPB). If he is successful, agents need to be extra vigilant to protect their clients against the poor lending practices and bad mortgage products that led to the Millennium Boom and bust that occurred following the last era of deregulation.

When mortgage rates continue to rise in the coming years, prices will be pulled down to meet the decrease in buyer purchasing power. For homebuyers desperate to qualify at today’s prices, the price drop will be largely counteracted by higher mortgage rates. Thus, home sales volume will continue to struggle immediately following the rate increase and price decline.

However, some light is on the horizon. California’s jobs recovery continues at a healthy pace going into 2017. We surpassed the number of jobs held prior to the recession in mid-2014. But with the intervening working-aged population increase of 1.2 million individuals, the real jobs recovery won’t take place until around 2019.

At that time, the next generation of first-time homebuyers will have gained enough confidence in the market and savings to make the leap into homeownership. Also at the end of this decade, Baby Boomers will begin to retire en masse, seeking to downsize and buy replacement homes that are more manageable and more centrally located — condominiums will likely receive a surge of interest.

The California legislature and local city councils will need to prepare for the next wave of home sales by allowing residential construction to reach its full potential. Currently, outdated and over-restrictive zoning regulations are keeping builders from responding to homebuyer demand. This is part of the reason why housing costs have outstripped incomes in California’s desirable coastal cities (San Francisco’s housing crisis quickly comes to mind).

Some of this effort is already underway in California, with accessory dwelling units and granny flats having a particularly good year in the 2016 legislature. Expect to see more zoning changes in the coming years to keep housing costs from expanding out of the reach of first-time homebuyers.

Continue to check in with first tuesday throughout the year for a heads up on changes to your real estate practice and California’s constantly shifting housing market.

Related topics:
california home prices, california legislation, california real estate, homes sales volume

Posted by Sarah Kolvas | Jun 20, 2016 | Finance, Laws and Regulations, Real Estate, Your Practice | 0

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

This article discusses the address discrepancy rules which mortgage loan originators (MLOs), mortgage loan brokers (MLBs), landlords and property managers who are subject to credit reporting rules implement on their receipt of an address discrepancy notice.

The address discrepancy rule

To ensure the security of consumer credit report information, the Federal Trade Commission (FTC) enforces an address discrepancy rule. [15 United States Code §1681c(h); 16 Code of Federal Regulations §641.1]

Consumer credit reports are ordered by users and received from credit reporting agencies. The users of consumer credit reports are broken into two classes: those who do and those who do not report on applicants to credit reporting agencies.

A user of consumer credit reports is any individual and business which orders and uses credit reports as a basis for setting the terms of a consumer mortgage or the terms of a residential rental or lease agreement. Credit report users include:

• mortgage loan originators (MLOs);
• mortgage loan brokers (MLBs);
• lenders and banks;
• landlords; and
• property managers. [See RPI Form 202, 302, 550 and 551]

In application, the address discrepancy rule has two separate compliance aspects for users of consumer credit reports:

1. confirmation of an applicant’s address; and
2. reporting an applicant’s corrected address to credit agencies.

To confirm an applicant’s address, all individuals and businesses using consumer credit reports need to implement office management policies to administratively establish the accuracy of an applicant’s address on their receipt of an address discrepancy notice from a national credit reporting agency (NCRA).

The second aspect of the address rule places a further burden on users who also regularly report credit information to credit agencies. Those users who provide credit agencies with financial information on their clients must also report an applicant’s corrected address to the credit agencies. This aspect of the rule typically only applies to:

• lenders and banks with consumer mortgage portfolios; and
• MLOs who also service consumer mortgages.

The address discrepancy notice

Users who order consumer credit reports receive an address discrepancy notice from a credit reporting agency when an applicant’s address stated on the credit application substantially differs from the address the agency has on file for that applicant. [15 USC §1681c(h)]

The rule does not clarify when an address is considered to “substantially differ” from the address on file, leaving this distinction up to each credit reporting agency to determine when providing address discrepancy notices.  Presumably, a submitted address may substantially differ from the address the agency has on file when the address contains a different street number, street name or zip code.

Receipt of a notice subjects the user who ordered the credit report to determine whether the credit report correctly relates to the named buyer or tenant applicant.

Importantly, the rule only applies to address discrepancy notices received by users from the three existing NCRAs — either directly or through a third party acting on their behalf. NCRAs include:

• Experian;
• Equifax; and
• [15 USC §1681a(p)]

Again, the address discrepancy rule only applies to consumer credit reports, thus exempting credit reports for business mortgage lenders and commercial landlords.

However, best practice by anyone relying on a credit report is to first confirm an applicant’s address, whether or not you receive an address discrepancy notice from any credit reporting agency for any type of mortgage or rental. Receipt of the notice indicates an ambiguity exists concerning the applicability of the credit report to the applicant.

Further, address discrepancy notices are red flags an MLO or MLB company evaluates as part of their identity theft prevention protocols.

Responding to address discrepancies

Users of credit reports need to create office management policies to reasonably establish and ensure a credit report relates to their applicant upon receipt of an address discrepancy notice.

Policies to confirm the credit report is for the applicant include:

• verifying the accuracy of the information in the credit report with the applicant themselves; or
• comparing information in the consumer credit report with information the user:
  • typically uses as part of their customer identification program to verify an applicant’s identity;
  • maintains in its records, such as mortgage applications; and
  • obtains from third-party sources, such as the applicant’s real estate agent. [16 CFR §641.1(c)]

Reasonable office management procedures to confirm a credit report properly identifies the applicant ensure the user has correct credit information for that buyer or tenant applicant — preventing them from issuing a mortgage or entering into a rental or lease agreement premised on someone else’s credit information.

When a credit report user determines the report they received does not relate to their applicant, the user then runs the applicant’s information again to pull the correct credit report and resolve any further discrepancies with the applicant.

Rules for users who report credit information

In addition to the above requirements, consumer credit report users who regularly report information to credit agencies are subject to address reporting requirements.

A user who confirms an applicant’s address is different than the one given in the consumer credit report which prompted the discrepancy only needs to submit the correct address to the credit reporting agency that issued the notice when:

• the credit reporting agency is an NCRA (or a third party acting on behalf of one);
• the user holds a reasonable belief the credit report is that of the identified applicant;
• the user establishes a continuing relationship with the applicant; and
• the user regularly furnishes information to the credit reporting agency in the ordinary course of business. [16 CFR §641.1(d)(1)]

Editor’s note — The requirement to report a correct address will most often apply to lenders and banks, not property managers, landlords or MLOs and MLBs who merely originate mortgages. However, an MLB who services mortgages and regularly reports a homebuyer’s credit information will need to include the corrected address in the information they report.

Office management policies set by a user (who reports) for confirming a consumer’s address and providing a corrected address to credit reporting agencies include:

• verifying the address with the applicant;
• reviewing their own records they have on the applicant; or
• other reasonable means. [16 CFR §641.1(d)(2)]

The user who reports to credit reporting agencies submits a confirmed address as part of the information they regularly provide to those agencies on an applicant (e.g., a buyer’s credit limit, delinquencies and late payments).

Following these procedures under the address discrepancy rule enhances the accuracy of credit reports used by all, and further ensures an MLO, MLB, landlord or property manager is alerted when they do not have the correct credit report for an applicant.

Noncompliance penalties

Credit report users for consumer mortgages and residential tenancies who do not comply with address discrepancy rules are subject to action by the FTC. The maximum penalty that may be recovered by the FTC is $3,500 per violation. [15 USC §1681s(a)(2)(A); 17 CFR §1.98]

The FTC also has the authority to:

• investigate the person or business in violation;
• enforce compliance through issuing procedural rules to be adopted for detecting suspicious activity; and
• require the filing of reports, the production of documents and the appearance of witnesses. [15 USC §1681s(a)(a)]

Credit report users are also exposed to litigation from the Consumer Financial Protection Bureau (CFPB), state government and consumers.

Related topics:
consumer protection, federal trade commission (ftc), landlords, mortgage origination, property manager, tenants

Posted by Carrie B. Reyes | May 23, 2016 | Bakersfield-Fresno, Buyers and Sellers, Feature Articles | 0

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

This article analyzes the problems poor air quality causes for residents of the San Joaquin Valley and describes the critical rules residents and real estate agents need to be aware of to mitigate the deleterious effects of air pollution.

The proverbial armpit of California

What region of California comes to mind when you envision an undesirable area wreaked by the ill-effects of a poor climate? Let us paint the scene for you.

The San Joaquin Valley starts south of Sacramento, encompassing Stockton and Modesto, and stretches south to Modesto, Fresno, Visalia and Bakersfield. The San Joaquin Valley bears the unpleasant moniker of “the armpit of California” due to the way the air collects pollution from other parts of the state and stagnates (with the smell of livestock) in the Valley. Further, its hot, dusty climate is a far cry from the pleasantness of nearby coastal climates with greater circulation.

The Sierra-Nevadas are the geographic issue which causes much of the Valley’s climate problems. Mountains stop wind from reaching the region, which causes pollution and dust to become stale, confining all the bad air so that it accumulates and becomes stifling.

Image courtesy U.S. Environmental Protection Agency (EPA)

The American Lung Association ranks the top metropolitan areas with the highest level of air particle pollution. The top seven in the nation are in California, most in the Valley:

1. Bakersfield;
2. Visalia-Porterville-Hanford;
3. Fresno-Madera;
4. Los Angeles-Long Beach;
5. El Centro; and
6. San Jose-San Francisco-Oakland and Modesto-Merced both tied for sixth.

The American Lung Association estimates 70% of Californians live in designated poor air quality areas. (The only cities in California with high-ranked air quality are Salinas and Redding.)

Aside from being unpleasant, the Valley’s poor air quality can cause Valley Fever — coccidioidomycosis — which the Center for Disease Control (CDC) claims is endemic in the Valley. This fever is caused by fungus in the soil getting trapped in the air and inhaled by residents. It can cause pneumonia and is especially dangerous for seniors. The CDC estimates 200 or fewer deaths occur per year in the U.S. due to Valley Fever.

In Bakersfield of Kern County, which has the dubious distinction of having the most polluted air in the country, 9% of children have diagnosed asthma, slightly higher than the national average. 8% of adults have asthma, also slightly higher than the national average, according to the CDC.

In addition to Valley Fever and asthma, poor air quality can cause:

• lung cancer;
• heart attack;
• stroke;
• reduced breathing capacity; and
• other respiratory illnesses.

Improving air quality

The good news is the Valley’s air quality is better today than in recent decades. For example:

• in Kern County, there are on average 73 fewer high ozone (smog) days and 25 fewer high particle pollution days each year compared to 2000;
• in Fresno and Madera, there are 68 fewer high ozone days and 27 fewer high particle pollution days each year compared to 2000; and
• Modesto-Merced sees 36 fewer high ozone days per year, but particle pollution has increased by 15 days per year compared to 2000, according to the American Lung Association.

Even after these improvements, the Valley is still by all accounts the worst region in the U.S. for air quality. Lower than average home values are also the norm here, though it’s difficult to prove the region’s poor air quality is the cause.

Wood-burning rules in the Valley

Despite its reputation, it’s not all gloom and doom for the San Joaquin Valley. Today’s (slightly) better air quality comes thanks to:

• a reduction in vehicle emissions;
• increased use of renewable energy; and
• local laws against wood burning.

Households residing in the San Joaquin Valley Air Pollution Control District are subject to Rule 4901, which bans wood burning in areas below 3,000 feet elevation and with access to natural gas service. To check if your client resides in the air district, look up the zip code at the California Environment Protection Agency’s (EPA’s) website.

This rule took effect in 2003, and has significantly improved air and life quality for residents in the winter months, when air particle pollution is at its worst. A Fresno State study finds this rule has not only decreased health suffering due to air pollution, but has also had a positive economic effect. Residents now spend cumulatively less on healthcare associated with lung diseases to the tune of hundreds of millions of dollars a year — savings which percolate back into the local community.

Pursuant to Rule 4901, sellers of real estate in San Joaquin Valley need to ensure any woodstoves or fireplace inserts are EPA Phase II certified. These certified appliances are identified by a permanent, metal label on the back or side. Any non-certified woodstove or fireplace insert needs to be removed from the property or, if it is decorative, made inoperable. [See Wood-Burning Heater Statement of Compliance]

In Kern County, developers may not install wood burning fireplaces in new subdivisions consisting of 10 or more dwellings. [See Rule 416.1]

Further, residential water heaters may not be installed in Kern County unless they are certified to meet the American National Standard. [See Rule 424-1]

What residents can do

If you live in an area with poor air quality, follow these tips to help improve the air you breathe:

• Pay attention to air pollution levels, which change on a daily basis. Enter your zip code at AirNow.gov to find out your area’s air quality today. On bad air days, stay inside.
• Don’t burn wood or trash, as this creates air particle pollution. While dust masks block large particles, they don’t protect against dangerous smoke particles and gases. If you have a wood-burning appliance, switch to gas or pellets. If you must burn wood, then ensure it is dry.
• Avoid spending time along busy roads during periods of heavy traffic, since vehicle exhaust is worse in these areas.
• Set your air conditioning to “recirculate” as this does not pull in air from outdoors. If you have a whole house or attic fan, only operate it on good air quality days.
• If you develop symptoms such as consistent cough, irritated eyes, shortness of breath, itchy throat, headaches or frequent sinus infections, visit your doctor.

Related topics:
drought, environmental law

Posted by Carrie B. Reyes | Aug 15, 2016 | Buyers and Sellers, New Laws | 0

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

In an attempt to quell money laundering in several U.S. cities, the Financial Crimes Enforcement Network (FinCEN), part of the U.S. Department of Treasury, will temporarily require title insurance companies to report the identities of people using all-cash to purchase high-end homes.

Title insurance companies will need to report these types of transactions beginning August 28, 2016, and — unless the order is extended — will continue to report through February 23, 2017.

The affected counties include three in New York, Florida and Texas, as well as the following expensive California counties:

• Los Angeles;
• San Diego;
• San Francisco;
• San Mateo; and
• Santa Clara.

In California, all-cash sales of $2 million or more need to be reported.

The requirement’s goal is to reveal the people behind “shell companies” who use large amounts of cash to purchase real estate. These shell companies might be legal, but they also might be hiding funds obtained illegally, which is what the FinCEN is interested in.

For instance, when purchasing a property through a limited liability company (LLC), the bank only requires the account holder of the LLC to be identified. Others with ownership interests in the LLC are of no interest to the bank. This dynamic makes an LLC a perfect place to park and hide money anonymously.

The reporting requirement was issued earlier this year, originally limited to counties in New York and Florida. But the success of the data collected so far has led the FinCEN to believe they will catch more financial criminals in other all-cash hotspots, like upscale coastal California. This also follows crackdowns by the Internal Revenue Service (IRS) on those with ownership in LLCs.

The title insurance company will use FinCEN Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, to report the sale within 30 days of the transaction closing. The title insurance company will file Form 8300 using the Bank Secrecy Act E-filing system.

For most California real estate brokers and agents, it’s business as usual. The new requirement will impact very few transactions, since it is limited to very high-end properties and only to those buyers using all-cash. However, for those active in those markets, be sure to advise your affected clients to this increased scrutiny.

Questions? Read the full order here.

Related topics:
all-cash buyers, cash buyer, limited liability company (llc)

Posted by Carrie B. Reyes | May 2, 2016 | Buyers and Sellers, Feature Articles | 1

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

Arbitration: the good and bad

When a dispute arises in a real estate transaction, instead of taking it to court, the people involved may grant an arbitrator the authority to hear and resolve their dispute.

Arbitration is less costly and quicker than allowing the dispute to go to court. It’s also the form of dispute resolution most consumers agree to abide by at some point or another — including in most real estate transactions. However, there are some major disadvantages:

1. Binding arbitration — the type of arbitration included in a provision of the purchase agreement published by the California Association of Realtors (CAR) — requires the buyer and seller to give up their rights to a trial by jury and prohibits them from appealing the arbitrator’s decision.
2. The arbitrator’s award is final, even if there was an egregious error or if they applied the law incorrectly. [Hall Superior Court (1993) 18 CA4th 427]
3. The arbitrator does not need to apply legal precedent, thus their final decision is unpredictable, or “arbitrary.”
4. The arbitration proceedings are not required to be published like court cases, thus it’s impossible for an outsider to know when disputes are decided fairly, or whether their assigned arbitrator is likely to be fair.
5. Arbitrators are not required to be unbiased or lack connections to an individual in the case, as many arbitrated disputes have assigned an arbitrator who is a long-time friend or acquaintance of one of the individuals in the dispute.
6. The arbitration provision is still enforceable as a separate agreement, even if the purchase agreement is unenforceable. [Prima Paint Corporation Flood & Conklin Mfg. Co. (1967) 388 US 395]

However, many homebuyers and sellers — and even some agents — assume they need to initial the arbitration provision in order to submit the purchase agreement. But this is not true.

Don’t initial that arbitration provision

As a matter of policy, Realty Publication, Inc. (RPI) forms do not contain boilerplate arbitration provisions. But when you are faced with an arbitration provision elsewhere — most commonly found in CAR’s forms, as well as credit card, auto and medical agreements — you are more than justified to steer clear.

The Consumer Financial Protection Bureau (CFPB), the watchdog standing between consumers and any potentially malicious financial systems, found most consumers have no idea what arbitration is, despite agreeing to arbitration agreement at one time or another.

The New York Times refers to arbitration agreements as “get out of jail free” cards for large corporations, since individuals can’t combine resources to bring a corporation to court for a fair hearing. This “opting out” of the legal system is rarely in the best interest of the consumer who has been wronged.

That’s because large arbitration companies are inherently biased, as they need to stay in business. To do this, they need to keep the businesses for which they arbitrate happy, since businesses are more likely than the individual to need to hire an arbitrator in the future. In other words, deciding in favor of big companies is always in the arbitrator’s best interest — never in the best interest of the consumer.

Next steps

If you’re convinced arbitration is the wrong approach to settle real estate disputes, consider informing clients about the risks of arbitration, before they agree to it. Download Client Q&A: What is arbitration? to distribute to clients prior to signing a purchase agreement that may include the provision.

Explaining the arbitration provision to clients does not constitute an unauthorized practice of law. In fact, it’s the agent’s duty to fully explain transaction details to their client. This includes informing them of the potential consequences of agreeing to arbitration.

Likewise, consider only using real estate forms which do not include the arbitration provision. RPI forms include a mediation provision for settling disputes. Unlike arbitration, clients who undergo mediation may later take the case to court if the dispute is not resolved to their liking. [See RPI Form 150]

first tuesday readers can download RPI forms, which are legal to use in California real estate transactions, for free here.

As a point of law, arbitration provisions are not included in trust deeds, consumer mortgage agreements or rental or lease agreements. [12 Code of Federal Regulations §1026.36(h)]

So why should your clients’ purchase agreements include such a provision?

For more reading on arbitration, see: Arbitration, explained.

Related topics:
arbitration, arbitration provision, legal advice

Posted by Amy Thomas | Feb 8, 2016 | Laws and Regulations, Recent Case Decisions | 0

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

Talaie v. Wells Fargo Bank, NA

Facts: A mortgage holder transfers a borrower’s mortgage to a successor mortgage holder. Neither mortgage holder notifies the borrower of the transfer. Three years later, a statutory amendment is established requiring mortgage holders to notify borrowers within 30 days of the transfer of their mortgages, or they may be monetarily liable to the borrower.

Claim: The borrower seeks punitive damages from both mortgage holders, claiming they are liable for failing to notify the borrower of the mortgage transfer according to the statute since they did not notify the borrower within 30 days of the mortgage transfer.

Counterclaim: The mortgage holders claim they are not liable for failure to notify the borrower of the mortgage transfer and do not owe the borrower punitive damages since the statute was implemented after the transfer occurred, thus they were not required to notify the borrower of the transfer as it predated the requirement.

Holding: The United States court of appeals holds the mortgage holders are not liable for failure to notify the borrower of the mortgage transfer and do not owe the borrower punitive damages since the statute was implemented after the transfer occurred and the requirement does not apply retroactively. [Talaie v. Wells Fargo Bank, NA (December 14, 2015) ____ F3d ____]

Read the case text.

Related topics:
assignment, truth in lending act (tila)

Posted by Carrie B. Reyes | Nov 17, 2016 | Mortgages, New Laws | 2

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

The Consumer Financial Protection Bureau (CFPB) has released new rules for mortgage servicers to follow when responding to mortgage delinquencies and pursuing foreclosure.

1. Beginning October 19, 2017, mortgage servicers are to offer homeowners foreclosure protections more than once if the need for protection arises numerous times.

For instance, consider a homeowner unable to make their mortgage payments who submits a complete loss mitigation application and receives a permanent mortgage modification. The homeowner brings the mortgage current. A few months later, they suffer another, unrelated hardship like a job loss or medical emergency, and face foreclosure again. The servicer is required to offer the same protections that were discussed in the first instance, including evaluating options to avoid foreclosure with the owner.

2. Beginning April 19, 2018, mortgage servicers are to extend foreclosure protections to surviving family members or heirs — known as successors in interest — upon the death of the homeowner.

Currently, the term successor in interest is somewhat ambiguous. This new rule defines a successor in interest as a person who receives property after the death of a family member or joint tenant, due to a divorce or legal separation, through certain trusts or from a spouse of parent. In defining this term, the CFPB makes certain that the same foreclosure protections granted the original homeowner pass on to the successor in interest.

3. Beginning April 19, 2018, mortgage servicers are to provide more information to homeowners in bankruptcy.

Under the new rules, mortgage servicers need to provide periodic statements to homeowners in bankruptcy. These statements are to include information specific to homeowners in bankruptcy, including information about loss mitigation options. Previously, servicers did not have to provide early loss mitigation information to homeowners who asked them to stop contacting them under the Fair Debt Collection Practices Act, but they will now be required to contact them with early loss mitigation notices.

4. Beginning October 19, 2017, mortgage servicers are to notify homeowners promptly when their loss mitigation applications are complete. Previously, owners were not always kept appraised of the status of their applications.

5. Beginning October 19, 2017, mortgage servicers are to provide additional protections when transferring mortgage servicing of the mortgage of a homeowner pursuing loss mitigation.

When a homeowner pursuing loss mitigation has their mortgage service transferred, the new servicer needs to follow the same timeframe established by the previous servicer for the loss mitigation process. When the homeowner applies for loss mitigation shortly before a transfer, the new servicer needs to send an acknowledgement to the homeowner that their loss mitigation application was received within 10 business days of transfer. When the homeowner’s loss mitigation application is complete before the transfer, the new servicer has 30 days to evaluate and respond.

6. Beginning October 19, 2017, mortgage servicers are to take aggressive measures to avoid dual-track foreclosures.

Under current law, servicers are not allowed to simultaneously pursue foreclosure while evaluating a homeowner for loss mitigation. However, some servicers do not take adequate measures to delay foreclosure proceedings after receiving a complete loss mitigation application before the required 37 days prior to the scheduled foreclosure sale. The CFPB clarifies that even if the servicer has delivered the first foreclosure notice, they are to halt foreclosure proceedings while evaluating a complete loss mitigation application.

7. Beginning October 19, 2017, the homeowner’s date of delinquency is to be clarified in the context of mortgage servicing.

Servicers currently are unclear on when a homeowner becomes delinquent, which becomes particularly confusing when a homeowner misses a payment and later pays it, only to miss another. This rule clarifies a delinquency begins on the date a homeowner’s periodic payment becomes due and unpaid. When a homeowner later makes a late payment, it is applied to the oldest missed payment and the date of the delinquency advances to that date.

 

Too late for foreclosed homeowners

These new rules change little about the foreclosure process and will not apply retroactively, so don’t expect these changes to make any headlines in the real estate world.

Further, these small changes do little to help the millions of people who were foreclosed upon during the 2008 recession and ensuing extended recovery.

The nationwide foreclosure inventory was at its lowest in over eight years in mid-2016 at just 1%, according to CoreLogic. It’s even lower in California, where only 0.4% of all mortgaged homes were in some stage of foreclosure in mid-2016.

With the foreclosure crisis definitively over, foreclosures will continue to decline as long as home prices continue to rise, lifting negative equity homeowners above water. This will continue until around late-2017, when the impact of higher mortgage interest rates will catch up with homebuyers and sellers and prices will begin to decline. In 2018, we may see a spurt of foreclosures as underwater homeowners throw in the towel and decide to default to get out from under their black hole assets. But — lacking a nationwide recession — this uptick in foreclosures will likely be shallow and brief.

Finally, with a new presidential administration in power, calls for a curtailing of the CFPB have been frequent from members of the Republican party who want to see less government intervention in the financial world. Some have called for the CFPB to stop making new rules immediately in preparation for the changes to take place once President-elect Trump takes office and appoints a new director to the organization — if the organization is to exist at all under Trump’s tenure. Thus, keep an eye on the CFPB in the coming months, as big changes are ahead.

See the full rule here. Or, view the CFPB’s brief explanation of the new rule here.

Related topics:
consumer financial protection bureau (cfpb), foreclosure, mortgage delinquency

Posted by Giang Hoang-Burdette | Nov 29, 2016 | New Laws, Real Estate | 0

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

Calif. Civil Code §4041
Added by S.B. 918
Effective date: January 1, 2017

A common interest development (CID) unit owner is required to provide to their homeowners’ association (HOA) an annual written notice of:

• primary and alternate addresses for receiving HOA notices;
• the name of any legal representatives who can be contacted in lieu of the CID unit owner in the event of the CID unit owner’s extended absence; and
• whether the CID unit is owner-occupied, rented, developed but vacant or undeveloped.

An HOA will request this information from each CID unit owner at least 30 days prior to releasing its annual budget report.

If the CID unit owner does not provide an address for receiving HOA notices, the HOA may meet its notice requirements by sending notices to the CID unit.

Read more:

Read the bill text.

Related topics:
homeowners’ association (hoa)

Posted by Sarah Kolvas | May 23, 2016 | Laws and Regulations, Real Estate, Your Practice | 1

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

A clarification of licensure requirements for paid property services and vacation rental activities was recently published as a licensee advisory by the California Bureau of Real Estate (CalBRE).

The advisory is the CalBRE’s response to complaints against sales agents and unlicensed individuals attempting to apply the “transient occupancy” exemption from real estate licensing to perform rental activities requiring a license.

When is a license required for property management?

An individual or corporation is required to hold a broker license when they perform any of the following services on behalf of another in exchange for a fee:

• listing real estate for rent or lease;
• marketing the property to locate prospective tenants;
• listing prospective tenants for the rental or lease of real estate;
• locating property to rent or lease;
• selling, buying or exchanging existing leasehold interests in real estate;
• managing income-producing properties; or
• collecting rents from tenants of real estate. [Calif. Business and Professions Code §10131(b)]

A licensed sales agent may also perform the above property management activities. However, they are required to be employed and supervised by a licensed broker. [Bus & P C §10132]

As always, real estate sales agents may never act or market themselves as independent agents, whether they are representing a seller or buyer in a sales transaction, referring or acting as a mortgage loan originator (MLO), or performing property management services.

While a broker license is required when performing property management services on behalf of an owner, a broker license is not required of anyone who manages their own rental property.

Importantly for this discussion, CalBRE broker licensure requirements do not apply to:

• a manager of a hotel, motel or auto and trailer park;
• a resident manager of an apartment building or complex;
• employees of a resident manager;
• a person or company that arranges transient occupancies; and
• an employee of a property management company who is supervised by a licensed broker or their licensed sales agent when they:
  • show rental units and common areas to prospective tenants;
  • provide and accept preprinted rental applications;
  • respond to inquiries from prospective tenants about an application;
  • accept security deposits, rents and deposits or fees for credit checks and administrative costs;
  • provide information about rental rates and terms of a lease or rental agreement;
  • accept signed lease and rental agreements from prospective tenants. [Bus & P C §10131.01(a)]

Short-term rental exemption

The “transient occupancy” licensing exemption — the focus of the CalBRE’s recent advisory — does not require a broker license for property managers of short-term occupancies, erroneously also called vacation rentals, in:

• single family residences (SFRs);
• common interest developments (CIDs); or
• apartment units. [Bus & P C §10131.01(a)]

A residential occupancy is a short-term stay, not a rental at all, when the total period of occupancy is for a term of 30 days or less. As a transient occupant, called a guest, the occupancy is subject to the collection, payment and accounting for local occupancy taxes for the stay. [Calif. Civil Code §1940]

The CalBRE reports some unscrupulous sales agents and unlicensed individuals are attempting to use the short-term transient occupancy exemption:

• to enter into property management agreements; and
• manage properties with rental terms longer than 30 days.

All this conduct is done under the guise of a short-term rental — a clear violation of California’s Real Estate Laws.

To best get a sense of the distinction between a rental and a transient occupancy, transient occupants are not tenants and do not rent; they are guests. They check in and check out, and their occupancy is called a stay, never a tenancy which is a rental of any type. Unlike tenants, transient occupants are not evicted since they do not hold a tenancy estate. Rather, the key is changed, they are locked out or the police remove the occupant after the day and hour of check out. [See RPI Forms 592, 593 and 594]

Rental agreements using the language of “short-term rental” do not establish a transient occupancy. Worse, they do not meet the transient occupant exemption’s guidelines when the occupant intends to remain in the premises for longer than 30 days. Thus, property management services for properties rented under these agreements require a broker license.

Penalties for violations

Violations of California’s Real Estate Law expose both unlicensed property managers and the property owners who compensate them to monetary liabilities.

Unlicensed individuals and sales agents who perform property management services without broker supervision are subject to:

• a fine of up to $20,000; and/or
• imprisonment in a county jail for up to six months. [Bus & P C §10139]

Unlicensed corporations performing property management services are subject to a fine of up to $60,000. [Bus & P C §10139]

Property owners who compensate unlicensed and unsupervised individuals are also subject to a fine of up to $100 per offense. [Bus & P C §10138]

In addition to state fines, independent sales agents who perform property management services without an employing broker are also subject to administrative discipline by the CalBRE, such as license suspension or revocation. [Bus & P C §10138]

The CalBRE notes it is open to receiving complaints against unlicensed property management activities and will carefully investigate claims of licensure exemption to ensure property managers meet exemption rules or are adequately licensed.

 

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

Posted by Giang Hoang-Burdette | Nov 8, 2016 | Feature Articles, Licensing and Education, New Laws, Real Estate | 3

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

Calif. Business and Professions Code §§10083.2, 10161.8
Amended by A.B. 2330
Effective date: January 1, 2018

Beginning January 1, 2018, an associate-broker’s California Bureau of Real Estate (CalBRE) public record will identify their employing broker(s).

Employing brokers will need to notify the Real Estate Commissioner in writing when they commence or terminate employment of a broker-associate, as they currently are required to do for salespersons.

Read more:
Read the bill text.

Related articles:

New bill calls for broker-associate accountability

Related topics:
broker, broker associate, department of real estate (dre), real estate commissioner

Posted by Giang Hoang-Burdette | Nov 21, 2016 | Mortgages, New Laws | 0

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

Calif. Civil Code §2920.7
Added by S.B. 1150
Effective date: January 1, 2017

This new law applies to successors, defined as natural persons who:

• are the spouse, domestic partner, joint tenant, parent, grandparent, adult child, adult grandchild or adult sibling of a deceased owner of a one-to-four unit principal residence;
• continuously occupied the property within the six months prior to the owner’s death;
• currently occupy the property; and
• are not in a legal dispute regarding the property.

This new law does not apply to federally chartered or state-chartered banks that foreclosed on 175 or fewer one-to-four unit California residential properties during the last reporting year.

Before a mortgage servicer may record a notice of default (NOD) on a one-to-four unit principal residence after being notified of the owner’s death by a non-borrowing successor, the mortgage servicer needs to:

• make a written request for proof of the owner’s death and provide at least 30 days for receipt of the proof; and
• make a written request for proof of the successor’s ownership interest and provide at least 90 days for receipt of the proof.

Proof of the successor’s ownership interest may be:

• probate letters, e.g., letters of administration;
• the deceased owner’s will or trust document;
• a revocable transfer on death deed;
• an affidavit of death of joint tenant;
• an affidavit of death of a spouse from a surviving spouse when the property was held as community property;
• a deed from a surviving spouse showing the residence was community property with the right of survivorship; or
• a certification of trust or other trust documents.

Within ten days of receiving the requested proof and determining the successor’s validity, the mortgage servicer needs to provide to the successor information about the mortgage, including the:

• principal balance;
• interest rate;
• interest rate reset dates and amounts;
• balloon payment amount, if any;
• prepayment penalties, if any;
• delinquency status, if applicable;
• monthly payment amount; and
• payoff amount.

The successor retains the deceased owner’s right to:

• all notices and timelines established by foreclosure laws;
• a single point of contact during the foreclosure process;
• foreclosure alternatives; and
• halt the foreclosure and/or pursue the servicer or lender for material violations of laws governing the foreclosure process.

The mortgage servicer will allow the successor to:

• apply to assume the deceased owner’s mortgage; and/or
• apply for a foreclosure alternative offered by the mortgage servicer.

When multiple successors exist, any successors who do not want to assume the mortgage must give written consent to the assumption by the assuming successor(s).

The mortgage servicer may evaluate the successor’s creditworthiness when determining whether to grant the assumption or foreclosure alternative. The mortgage servicer is not obligated to approve the assumption or foreclosure alternative.

These rules sunset on January 1, 2020.

Read more:

Read the bill text.

Related article:

FARM: California homeowners: know your rights

 

 

Related topics:
assumption, death, foreclosure, notice of default (nod)

Posted by ft Editorial Staff | Apr 25, 2016 | New Laws, Real Estate | 0

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

There’s a reason why you probably haven’t heard about the Protecting Americans from Tax Hikes (PATH) Act — its effect on California real estate is almost trivial. While the PATH Act is mostly a giveaway to stock brokers, foreign investors and underwater homeowners who might benefit from changes to tax policy, savvy real estate brokers and agents with an ear to the ground may be able to exploit the law’s milder provisions.

For a small number of real estate owners and investors, the PATH Act provides marginal tax benefits in 2016, including:

• extended relief for underwater homeowners with recourse mortgages from discharge-of- indebtedness income taxes on short sales; and
• investment incentives for foreign investors in real estate investment trusts (REITs).

Discharge-of-indebtedness income on short sales

The amount of debt forgiven on the short sale of a principal residence is generally taxable as discharge-of-indebtedness income — also called phantom income since the seller receives no net benefit — unless the mortgage is a nonrecourse debt. Debt forgiven on a nonrecourse debt is not taxable as discharge-of-indebtedness income. [Code of Federal Regulations §1.1001-2(a)(2)]

Under the PATH Act, phantom income realized on recourse mortgages through the 2016 tax year is now excluded from a homeowner’s federal taxable income. Debt discharged after 2016 will also be excluded from income if the short sale purchase agreement was entered into in 2016.

Mortgage holders advocate for the punishment of delinquent homeowners who rely on the short sale remedy. The lending industry pushes struggling homeowners through a variety of hoops to rectify their inability to pay their mortgage. This is a moral consequence that is deeply ingrained in the world of lending. With the exclusion of phantom income from a homeowner’s tax bill, there is one less obstacle for getting rid of a negative equity home.

However, the PATH Act only provides federal tax relief to short sellers with discharge-of-indebtedness income on recourse mortgages. The California Franchise Tax Board (FTB)’s favorable tax treatment of forgiven recourse mortgage debt expired on January 1, 2014. [Calif. Revenue and Taxation Code §17144.5]

California’s laws will conform to federal guidelines when Senate Bill 907 works its way through the state legislature.

Related article

What California short sellers need to know before tax-time

Investment by foreigners incentivized

Whereas the poem at the base of the Statue of Liberty proclaims, “give me your tired, your poor, your huddled masses yearning to breathe free,” the foreign investor provision of the PATH Act can be best summarized with the words “give me your wealthy, your skilled, your eager to spend.”

Foreign investors may now own up to 10% of a publicly traded real estate investment trust (REIT) without the REIT being adversely taxed. Previously, REITs were penalized when selling shares to foreign owners exceeding 5% of the value of the REIT.

Making REIT ownership more widely available to foreign money allows overseas funds to flow into REITs instead of direct ownership of real estate, stocks, bonds or deposits with the Federal Reserve (the Fed). More funds will then be available for REITs to pay even more for what has become a rather fixed supply of improved real estate – unless they take to building new projects.

Related article

REIT investment: playing the real estate game from the sidelines

This provision of the PATH Act is a kickback to REIT managers and stock brokers. The federal government is stoking the fire of artificial demand with no regard for the health of the economy when the sources of these “hot money” funds disappear (as they always do and inevitably will).

PATH Act footprints?

Despite the hoopla attendant with all politically induced schemes, these provisions will have only a moderate and temporary effect on sales volume, pricing and tax consequences for participants in California real estate transactions. Further, government subsidies for recession recoveries do end. To the extent real estate licensees depend on the transactions generated by these programs, they need to have an exit plan into other types of sustainable transactions before the subsidies run their course.

While government incentives temporarily increase sales volume, they do nothing to stimulate organic end user demand. Further, mortgage rates will rise, probably by late 2016. Thus, expect any sales volume boost from these incentives to fall off with prices following within 12 months.

Real estate agents and brokers know inert and static pricing means the death to sales volume, and thus fees. Those able to understand and exploit the volatility in demand created by tax policy will be able to ride the wave before benefits expire and foreign money dries up, and conditions crash back to a normal pace.

Related topics:
underwater

Posted by Connor P. Wallmark | Nov 30, 2016 | Laws and Regulations, Real Estate, Recent Case Decisions | 1

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

Facts: A buyer’s agent locates a suitable property for their buyer. The seller’s agent is employed by the same broker as the buyer’s agent. The broker’s dual agency status is timely disclosed to the buyer. The listing and marketing materials provided by the seller’s agent to the buyer significantly misstate the square footage of the home and are inconsistent with public records. The seller’s agent does not bring the discrepancy to the buyer’s attention nor recommend any further investigation. After the sale closes, the buyer discovers the discrepancy in the square footage.

Claim: The buyer seeks money losses from the seller’s agent, claiming the seller’s agent breached their fiduciary duty owed to the buyer since the broker was a dual agent and thus the seller’s agent owed the buyer a fiduciary duty to investigate and disclose all infor­mation materially affecting the value and desirability of the property, such as the property’s square footage.

Counter claim: The seller’s agent claims they are not liable for the buyer’s money losses since the fiduciary relationship between the broker and buyer does not extend to the seller’s agent, who was acting as the exclusive agent of the seller.

Holding: A California Supreme Court holds the seller’s agent is liable for the buyer’s money losses since, as the employing broker was acting as a dual agent, the seller’s agent was also a dual agent who owed a fiduciary duty to the buyer.  [Horiike v. Coldwell Banker Residential Brokerage Company (November 21, 2016)_C4th_]

Agent of the agent and reciprocal duties

A sales agent who provides real estate services is limited to the status of an agent working on behalf of and dependent on their employing broker. An agent, also known as an associate licensee, rendering real estate services cannot independently contract in their own name or on behalf of anyone other than their employing broker. [Calif. Business and Professions Code §10160]

Only brokers may be employed by members of the public to act on their behalf. A broker’s sales agents are therefore accurately described as agents of the agent — i.e., agents of their employing broker. Sales agents render services on behalf of the broker’s clients, and do so exclusively as their broker’s representatives. [Calif. Civil Code §2079.13(b)]

Thus, a sales agent does not have an independent agency relationship with their broker’s clients — the agency relationship of the sales agent is derived from the agency relationship that exists between the broker and the client. Sales agents therefore owe all transaction participants identical duties as the broker on whose behalf the sales agent is acting.

In this case, when the broker elected to act as a dual agent for both the buyer and seller, the seller’s agent, as an associate licensee of the broker in the transaction, assumed equivalent dual agency duties as the broker — including the fiduciary obligation to act with the utmost care, integrity, honesty and loyalty in the dealings with the buyer.

Here, the seller’s agent misinterpreted the bilateral nature of agency relationships. By the seller’s agent’s reasoning, it was a one-way street: if the seller’s agent was a dual agent, then the seller’s broker was necessarily cast as a dual agent; however, if the seller’s broker was a dual agent, this would not automatically trigger dual agency obligations (with attendant fiduciary duties) on behalf of the seller’s agent. This incorrect reasoning misconstrues the power dichotomy between broker and agent — the employing broker is the nexus by which the agency relationships of all the broker’s agents are established. Agency relationships flow from the headwaters of the broker down to the tributaries of their agents — not uphill from the agent to the broker.

Editor’s note — Even in the absence of a fiduciary duty to the buyer, seller’s agents have a general nonfiduciary duty to disclose to prospective buyers all material facts affecting the value or desirability of a property. Thus, even if the seller’s agent did not owe a fiduciary duty to the buyer, they still would have breached their general duty to disclose the significant discrepancy in the property’s square footage.

Dual agency — a double edged sword

Stated simply, a dual agent is a broker who simultaneously represents opposing principals in a transaction, either by themselves or through the agents they employ.

A dual agent owes a fiduciary duty to both principals they represent since each are the broker’s clients. Thus, the dual agency alone creates a conflict of interest, which needs to be promptly disclosed to each client. [See RPI Form 117; CC §2079.17]

Related reading:

Dual agency explained

The dual agency situation inherently imposes limitations on the benefits obtainable by the principals. Though a dual agent is duty-bound to work diligently on behalf of both clients, they are prevented from actively achieving the full advantages of negotiations for either client. Like the opposing ends of a teeter totter, a natural inability exists to simultaneously negotiate the highest and best price for the seller, and the lowest and best price for the buyer.

Thus, clients of a dual agent generally do not receive the full range of benefits available from an exclusive agent. This environment, even when handled properly, exposes dual agents to breach-of-duty claims.

This client disadvantage holds true even if different agents employed by the same broker each work with different principals in the same transaction, as this case clearly illustrates.

It all comes back to disclosure

Though this case touches on multiple bedrocks of real estate practice — dual agency, fiduciary duty versus general duty, the transmission of legal responsibilities between brokers and their agents — the catalyst which set this case in motion was the seller’s agent’s failure to disclose the discrepancy in square footage to the buyer.

Editor’s note — The discrepancy in square footage is significant. Public records indicate the property measures 11,050 square feet with 9,434 square feet of living area. However, the listing and the seller’s agent’s marketing materials state the home provides “approximately 15,000 square feet of living areas.”

Related reading:

Combating lies in real estate transactions

Here, the seller’s agent unequivocally remained silent regarding the known discrepancy. Even had the seller’s agent not owed a fiduciary duty to the buyer, the seller’s agent would still have owed the prospective buyer, and also the buyer’s agent, a limited, non-client general duty to voluntarily provide critical factual information on the listed property.

What is limited about the duty is not the extent or detail to which the seller’s agent may go to provide information, but the minimal quantity of fundamental information and data about the listed property which the seller’s agent will hand to the prospective buyer or the buyer’s agent before the seller enters into a purchase agreement.

The information disclosed by the seller’s agent only needs to be sufficient to place the buyer on notice of facts which may have an adverse effect on the property’s value or interfere with the buyer’s intended use.

In this case, the seller’s agent said nothing to put the buyer or their agent on notice.

California’s public policy pursues transparency in property information between sellers and buyers. A seller’s agent’s disclosures inform prospective buyers about the fundamentals of the listed property and act to eliminate the asymmetry of information in sales transactions. Thus, the seller’s agent is severely limited in their ability to exploit the prospective buyer’s lack of knowledge about the condition of the property by use of these disclosures.

A seller’s agent fails to perform the general duty owed to the buyer to disclose knowledge of material facts — such as the actual total square footage of a property — when information that might affect the buyer’s decisions regarding an offer is withheld.

Editor’s note —The broker who employed the buyer’s and seller’s agent will also be pursued. However, the buyer stipulated they did not seek recovery for breach of fiduciary duty based on the buyer’s agent’s conduct.

Related topics:
agency, dual agency, fiduciary duty, general duty

Posted by ft Editorial Staff | Dec 5, 2016 | Finance, Laws and Regulations, Real Estate | 0

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

The Consumer Financial Protection Bureau (CFPB) recently proposed new regulations that expand the prohibition of arbitration agreements in consumer financial products and services. Arbitration provisions are already prohibited in residential mortgage agreements. However, the proposed rules significantly broaden these consumer protections, shifting focus to other consumer financial products and services overseen by the CFPB, including providers of consumer:

• credit and checking accounts;
• car leases;
• debt management services;
• credit reports;
• payment processing services; and
• debt collection.

The proposed rules will:

• prohibit consumer finance companies from using mandatory binding arbitration agreements that block consumer class action lawsuits; and
• require companies that use arbitration provisions in their agreements to submit arbitration claims, awards and records to the CFPB for abuse monitoring purposes.

The CFPB’s proposal is a response to its study on the use of mandatory arbitration provisions in consumer finance agreements. The study found most consumers are unaware their finance agreements contain arbitration provisions. And of those who are aware of the provision, the majority do not understand what the provision entails — or its very significant legal ramifications.

Further, the study found consumers were less likely to pursue a finance company through individual actions and more likely to obtain relief when taking part in a class action. Many finance companies leaned heavily on the arbitration provision as a method of keeping disputes out of court and saving money in the process.

Thus, the CFPB intends the rules to protect consumers’ rights to seek relief in court through class action lawsuits and curtail the over reliance of finance companies on arbitration as a means to block a proper hearing. The regulations are also expected to dissuade misconduct by holding finance companies accountable and providing increased transparency through the CFPB’s collection and monitoring of arbitration records.

Why focus on arbitration?

A closer look at how arbitration provisions function in finance agreements reveals the reasoning behind the CFPB’s tighter controls.

A mandatory arbitration provision in a consumer finance agreement grants a third-party arbitrator the authority to hear and resolve a dispute arising from the agreement. The arbitrator issues a binding award in favor of either the consumer or finance company as a remedy for the dispute.

Arbitration in real estate contracts: Will you sign away your right to your day in court?

In return for agreeing to arbitration, the opposing parties to the agreement relinquish their rights to settle their disputes in a court of law.

While these arbitration agreements offer a less costly and quicker alternative to a court trial, they also pose major disadvantages to consumers, including:

• the critical loss of a consumer’s rightsto a trial by jury and to appeal the arbitrator’s decision;
• the potential for egregious errors or incorrect application of the law by the arbitrator when issuing an award, which remains final and binding [Hall v. Superior Court (1993) 18 CA4th 427];
• no requirement for legal precedence, thus risking unpredictable, “arbitrary” awards;
• a lack of accountability as there is no requirement for arbitration proceedings to be published like court cases;
• the risk of a biased arbitrator since arbitrators are not prohibited from having a connection to an individual in the case; and
• the prevention of class action lawsuits by multiple consumers experiencing the same misconduct from a finance company, which reduces the likelihood of consumers obtaining relief.

Due to the risks arbitration poses to consumers and the need for a judge to protect the public, arbitration provisions are no longer permitted in trust deeds, consumer mortgage agreements and rental or lease agreements. [12 Code of Federal Regulations §1026.36(h)]

Editor’s note — Arbitration provisions have always been excluded from (RPI) Realty Publications, Inc. forms as a matter of policy since their creation in 1978.

The CFPB’s latest attention to other financial products and services is an attempt to broaden protections to ensure more consumers obtain relief when confronted by misconduct from a finance company — which is, after all, they very purpose of the CFPB.

Awaiting the next step

With the CFPB now hanging in the balance following the recent presidential election and talks of dismantling the agency, it is uncertain when or if these proposed rules will actually take effect.

According to the CFPB’s latest statement of regulatory priorities, the CFPB has received an influx of comments on the proposal and may develop a final rule in spring 2017.

In the meantime, opponents have issued rebuttals seeking to prevent implementation of the arbitration restrictions, claiming the rules will elevate costs to finance companies and consumers alike. However, the proposed rules remain a top priority for the CFPB and a critical step in protecting consumers from unscrupulous companies that seek to limit consumer access to thorough legal aid.

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

Posted by Giang Hoang-Burdette | Nov 1, 2016 | Licensing and Education, New Laws | 0

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

Calif. Business and Profession Code §10083.2
Amended by A.B. 1807
Effective date: January 1, 2018

A California Department of Real Estate (DRE) licensee may petition the DRE to remove the licensee’s disciplinary action from DRE’s public records page if:

• 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.

All disciplinary actions will remain on record with the DRE and continue to be shared with other licensing and regulatory agencies.

Read more:
Read the bill text.

Related topics:

Posted by Giang Hoang-Burdette | Dec 23, 2016 | New Laws, Real Estate | 0

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

Calif. Insurance Code §§10083, 10087
Amended by A.B. 499
Effective date: January 1, 2017

An insurance provider’s offer to renew a residential earthquake insurance policy with reduced coverage or substantially different coverage than that provided in the current policy triggers the need to provide to the homeowner a standalone disclosure of the changes.

If a renewal application or disclosure connected with a residential earthquake insurance policy is hand delivered, a signed acknowledgement of receipt is sufficient to prove the insurance provider met their disclosure requirement.

Read more:

Read the bill text.

Related topics:
homeowners insurance

Posted by ft Editorial Staff | Aug 26, 2016 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Property Reserve, Inc. v. Superior Court

Facts: A government entity seeks to conduct environmental and geological tests and studies on privately owned raw land to review for possible future acquisition through eminent domain. The geological tests require the landowner provide access to the land for up to two months over the course of one year. The government deposits probable compensation with the court in case their actions result in damage to the land and the property is not acquired. The landowner denies the government access to the property on the grounds that the geological tests are so large in scope as to constitute a temporary blanket easement and do not fall under the entry statute provision of eminent domain law.

Claim: The government seeks access to the property, claiming entrance to conduct environmental and geological tests and studies is lawful since probable compensation was deposited with the court and the scope of the tests is irrelevant when evaluating the legality of entry statutes.

Counterclaim: The landowner claims it is unlawful for the government to conduct extensive environmental and geological tests on their land since the tests are so damaging as to constitute a taking of their property.

Holding: The California Supreme Court holds the environmental and geological tests do not constitute a taking and the government may access the property for the purpose of conducting any tests since probable compensation for damages has been deposited with the court, making the large scale of the surveys irrelevant. [Property Reserve, Inc. v. Superior Court (July 21, 2016 __C4th__]

Read the case text.

Related article:

Do pre-eminent domain surveying actions constitute a taking of property entitling the owner to compensation?

Related topics:
eminent domain

Posted by ft Editorial Staff | Sep 13, 2016 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Friends of the Hastain Trail v. Coldwater Development, LLC

Facts: The public uses a fire road as a recreational hiking trail for many decades. The trail passes through private property and is operated by the local government as a temporary public easement. A more efficient fire road is later constructed and exclusively used to provide fire protection to the area but the public continues to use the original trail. A residential real estate developer purchases the underlying property and begins constructing homes near the trail, impeding recreational use.

Claim: A public advocacy group seeks to halt development near the trail, claiming an easement exists along the trail since the fire road was in continuous and notorious use by the public for a period exceeding five years, thus meeting the qualifications of an implied dedication for public use.

Counterclaim: The real estate developer claims the trail does not meet the standards for an implied dedication since the advocacy group did not present evidence of continuous and notorious use of the fire road.

Holding: A California Court of Appeals holds the trail was not dedicated by implication and the developer may continue with their construction since the original fire road was a conditional public easement necessary for so long as it was needed to help protect against fire and it was unforeseen the road would later be used as a trail by hikers. [Friends of the Hastain Trail v. Coldwater Development, LLC (July 27, 2016) __CA4th__]

Read the case text.

Related topics:

Posted by ft Editorial Staff | Feb 15, 2016 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Harrison v. City of Rancho Mirage

Facts: A condominium owner rents out their unit as a short-term vacation rental. The local government enacts an ordinance on privately owned short-term vacation rentals requiring a person over the age of 30 sign an agreement with the unit owner to be the responsible person ensuring all occupants follow the rules and regulations.

Claim: The condominium owner seeks to prevent the local government from enforcing the ordinance, claiming it violates the Unruh Civil Rights Act by restricting short-term vacation rentals to persons at least 30 years of age, exposing the owner to liability in a potential civil suit, since the law prohibits a business establishment from discriminating in housing or other accommodations on the basis of age.

Counterclaim: The government seeks to continue enforcement of the local ordinance, claiming the Unruh Civil Rights Act does not apply to municipal legislation since the act only applies to businesses and the local government is not a business establishment.

Holding: A California court of appeals holds the ordinance is enforceable since it does not violate the Unruh Civil Rights Act as the act does not apply to local legislation, only business establishments. [Harrison v. City of Rancho Mirage (December 18, 2015) __CA4th__]

Read the text of the case.

Editor’s note – See the Guest Occupancy Agreement — For Transient Occupancy Properties. [See RPI Form 593]

This form is used by a vacation rental operator when entering into a guest’s occupancy of a vacation property, hotel, motel, inn, boarding house, lodging house, tourist home or similar transient accommodations for a period of 30 days or less, to document the terms of a guest’s occupancy.

For further reading on the Unruh Civil Rights Act, see Fair Housing, Chapter 4: California protected civil rights.

Related topics:
discrimination, local government, unruh civil rights act

Posted by Carrie B. Reyes | Feb 22, 2016 | Buyers and Sellers, Commercial, Feature Articles, Investment | 1

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

This article explains the basics of the EB-5 visa program for foreign investors.

EB-5 basics

U.S. Citizenship and Immigration Services (USCIS) administers the EB-5 visa program, which stands for Employment-Based Immigration: Fifth Preference. The EB-5 program has enabled foreign investors to gain permanent residence status — a green card — if the investor:

• invests the appropriate amount in a commercial enterprise; and
• plans to create at least ten permanent, full-time jobs for qualified U.S. workers, or preserve ten jobs of what is currently classified as a “troubled business.” [8 Code of Federal Regulations 204.6]

To qualify, the EB-5 investors needs to invest at minimum:

• $1 million; or
• $500,000 in:
  • a high unemployment area, which is any area with an unemployment rate 150% or higher than the national average; or
  • a rural area, which is any area outside a designated metropolitan statistical area (MSA).

This investment needs to be associated with a sponsoring organization approved by the USCIS to participate in the EB-5 program, called a Regional Center. Typically, the Regional Center is organized as a limited liability company (LLC) and can be publicly or privately owned. The investor becomes an investing member of the Regional Center, which uses the money of its members to participate in the local economy by purchasing property and creating jobs. [8 CFR §204.6(m)(3)]

California is a popular destination for EB-5 investors. 192 Regional Centers exist in California, totaling 17% of the total number of Regional Centers located across the U.S. Many of these Regional Centers are property investment firms or LLCs. An investor wishing to meet the job and investment requirements by investing in their own personal residence does not qualify. Of course, they may purchase a personal residence in the U.S., but they also need to separately fulfill the Regional Center and employment requirement to qualify for the EB-5 visa.

Worries about program abuse

How does USCIS ensure foreign investors don’t abuse the program? After all, can’t an applicant apply with the “plan” to create ten full-time jobs and then never follow through? Or, what’s to stop them from reneging on their promise to invest in a Regional Center?

In fact, shortly after the program first started in 1992, Congress identified many abuses of the program. As a result, the EB-5 program was frozen from 1998-2002, and no new applicants were accepted until 2003. In 2016, demand for EB-5 applications is high, with nearly 60,000 investor applications awaiting processing. In contrast, the U.S. caps the number of new EB-5 investors at 10,000 annually.

Today, investors are required to submit evidence of their commitment to participate in the job-creating aspect of the program before gaining admittance into the EB-5 visa program. The evidence needs to show how:

• the individual has already invested or is in the process of investing the appropriate amount of money in a commercial enterprise that was established:
  • after November 29, 1990; or
  • on or before November 29, 1990 that has been restructured since then so that it is essentially a new business, or expanded so that a 40% increase in net worth or number of employees occurs;
• the individual will be actively involved in the day-to-day running of the commercial enterprise;
• the money invested was acquired through lawful means;
• the ten-worker minimum will be met through a detailed business plan; and
• the ten-worker minimum will not be met by hiring of family members or individuals not authorized to work in the U.S.

More significantly, in order for the investor and their family to remain in the U.S., they need to provide evidence in the 90 days following their two-year anniversary of admission into the U.S. that they have met the terms of the EB-5 program. Therefore, if the investor did not succeed in creating at least ten full-time permanent jobs and/or in rehabilitating a failing business, their visa will be revoked. If they have met the terms of the program, they receive permanent residence status, which means their green card does not need to be renewed.
[dfads params=’groups=37813&limit=1&orderby=random’]

Come to America, we want your money!

Since its inception, the EB-5 visa program has aimed to stimulate and grow the U.S. economy. It does this by acknowledging the fact that the U.S. has numerous benefits that are attractive to foreign families, like a good educational system and solid investment opportunities. When it works, it’s a win-win situation for the U.S. and local economy and the foreign investor and their family.

To that end, some Regional Centers have fully embraced the green card part of the program. For instance, Live in America-California Regional Center simply asks the question:

Do you and your family want to live in America?

If you have $500,000, the EB-5 program is for you!

It outlines the various projects program participants can invest in, like the California Investment Immigration Fund, LLC, which finances and develops commercial and mixed-use real estate projects in Los Angeles County.

International migration has a strong influence on U.S. economics, especially in California. Our state receives the most international migrants each year, netting 161,000 new individuals from outside the country in 2014, according to the U.S. Census. Many of these individuals are undocumented, working low-paying and unstable jobs. While low wages limit the amount undocumented workers can contribute to their local economies, they still perform necessary jobs to keep California’s economy rolling, specifically in the agriculture sector.

With the EB-5 program, the federal government seeks to increase the number of wealthy international migrants. These individuals are most likely to purchase not only commercial real estate, but also personal residences to house them and their families. Investments made through the EB-5 program created a total of $3.4 billion in revenue during 2012, and the program is estimated to support 42,000 jobs annually, according to Invest in the USA, a trade organization which advocates for the EB-5 program.

Demand to participate in the EB-5 program will only increase in 2016, as investors uncertain in the global economy turn to the relative safety of U.S. investments. The dollar is strong in the U.S., and the economy is solid in 2016.

California, which already has 17% of the U.S.’s Regional Centers, will continue to profit. Most migrants who choose to purchase real estate in California say they wish to be closer to family and friends already in the state.

Real estate agents seeking more international clients may become familiar with the EB-5 visa program. Then, share the program with current or past international clients so they can pass on the information to their international family and friends who may also wish to move to California.

Related topics:
foreign real estate investor, immigration, international buyer

Posted by Sarah Kolvas | Jan 5, 2016 | Laws and Regulations, Real Estate, Your Practice | 2

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

Read on to understand when you may digitize your real estate transactions by using electronic documents and signatures.

Real estate is an industry heavy in agreements and disclosures to document obligations and duties performed. With electronic transactions now commonplace, regulations have followed to allow real estate licensees to provide transaction documents – including agreements and disclosures in sales, leasing and mortgage originations – to all participants electronically.

As a matter of public policy, a few extraordinary sales, leasing and mortgage-related activates, as well as most post-closing notices, require use of a printed copy, as listed below.

The use of electronic agreements, signatures and other documents in consumer, business and commercial transactions was first permitted in 2000 by California’s adoption of the Uniform Electronic Transactions Act (UETA). Soon after, federal law standardized the acceptance of electronic documents and signatures nationwide by the Electronic Signatures in Global and National Commerce Act (E-SIGN). [Calif. Civil Code §1633.1 et seq.; 15 United States Code §7001 et seq.; 12 Code of Federal Regulations §609.910(a)]

As a result, no person may deny the legal effect and enforceability of electronic documents and signatures due to their electronic format. [CC §1633.7]

Using electronic documents and signatures

An electronic document is any agreement or record created, generated, sent, received or stored by electronic means. [CC §1633.2(g)]

Real estate licensees frequently use digital forms, such as portable document format (PDF) files, online applications and software programs that allow licensees to prepare, deliver, store, download (receive) and print documents online or by e-mail.

Related article:

RPI Forms Download page

An individual or agent of an entity entering into an agreement may use their electronic signature (e-signature) to indicate their intent to sign the document. An e-signature includes any electronic sound, symbol or process attached or associated with a document an individual uses to express their intent to sign the document. [CC §1633.2(h)]

E-signatures are broadly defined to accommodate the wide range of methods and technologies used to electronically sign documents. To comply, an agent obtains their client’s e-signature as:

• a digitized signature (similar in appearance to a wet signature);
• a unique password;
• a pin number; or
• the act of clicking an “I agree” button.

Typically, software programs provide for e-signatures in real estate transactions as they are the most secure and easiest methods — Adobe Acrobat and DocuSign, for example. These programs allow a client to create a digital signature they can insert into an electronic document they intend to sign. Transmission of e-documents via e-mail or other online form of delivery protects the signature under these programs. Importantly, programs provide the ability to authenticate the signature and verify the individual named as the signatory provided it.

Thus, a client’s digital signature on a purchase agreement creates an enforceable offer to purchase due to the legislatively approved and now common use of electronic transactions. Similarly, real estate agents may use electronic listing agreement forms to create an enforceable agency relationship with a client, as though it were a printed document manually signed by the client.

Notarization and acknowledgement requirements are satisfied by using e-signatures, as long as the notary public (or other authorized person) provides their e-signature and any mandated information. [CC §1633.11]

Requirements for electronic transactions

E-documents and e-signatures may be used to satisfy any law that requires documents and notices be written to be enforceable, such as those related to a note and trust deed in a consumer mortgage origination, a listing or purchase agreement on the sale of a residential property (with some public policy exceptions listed below) or leasing agreements. To comply with document posting requirements, a printed physical copy of the document will need to be used, as listed below. [CC §1633.7]

Thus, in addition to agreements in sales, leasing and mortgage originations, real estate licensees may deliver all required disclosures to clients electronically, including the agency law disclosure, Transfer Disclosure Statement (TDS), environmental hazard disclosure and natural hazard disclosure (NHD). [See RPI Forms 305, 304, 316-1 and 314]

However, for electronic documents to be enforceable, licensees need to confirm that clients:

• agree to receive transaction documents electronically [CC §1633.5(b)]; and
• have the ability to save any electronic document sent to them. [CC §1633.8(a), (c)]

A client can provide consent to receive documents either by an agreement authorizing the use of electronic documents, or by their conduct. Any agreement approving the use of electronic transactions must be provided electronically or, when printed/written, as a separate agreement intended to be used for the sole purpose of authorizing electronic transactions. The written authorization signed by the client may not be a provision within a written agreement that serves some other purpose. [CC §1633.5(b)]

A client who agrees to receive transaction documents electronically may withdraw their consent and refuse to conduct future transactions electronically. [CC §1633.5(c)]

Further, written document requirements that specify particular content or format for documents, such as font size or text, are not altered by the UETA. Thus, when delivered electronically, a document still needs to contain all mandated content. [CC §1633.8]

Retaining electronic records

Real estate brokers and their agents may electronically store documents, such as listing agreements and cancelled checks, to satisfy California Bureau of Real Estate (CalBRE) state recordkeeping rules. To use an electronic format to retain documents, a broker needs to ensure the digital document:

• accurately reflects the information in the agreement or other document being retained; and
• remains accessible for later reference. [CC §1633.12(a)]

For example, brokers and their agents need to retain records of all activities completed on behalf of a client, including trust fund accounting records and disclosure statements, for three years. UETA allows them to satisfy this requirement by storing all related documents in an accessible electronic format. [Calif. Business & Professions Code §10148]

Storing documents electronically also satisfies any requirement for a document to be provided or retained in its “original form.” [CC §1633.12(d)]

Excluded real estate transactions

Though most transactions requiring written agreements and disclosures may be conducted electronically, some real estate transactions are excluded from California’s UETA.

The following still need to be documented in paper format as they are not subject to UETA:

• all notices regarding a mobilehome tenancy required by the Mobilehome Residency Law, such as a notice of change of law, notice of maintenance charges, notice of the tenant’s right to inspection or notice of termination of tenancy [CC §798.14];
• a notice of a blanket encumbrance which includes a subdivision parcel [CC §1133];
• disclosures of defects on the first sale of a condominium unit converted from an existing dwelling [CC §1134];
• equity purchase (EP) agreements [CC §1695];
• disclosures required for shared appreciation loans for seniors [CC §1917.712];
• documents requesting a prospective tenant to pay an applicant screening fee [CC §1950.6];
• a notice of personal property remaining at a premise after the termination of tenancy [CC §1983];
• a notice of default (NOD) and foreclosure sale [CC §2924b];
• a notice of balloon payment [CC §2924j];
• a notice of the transfer of mortgage servicing [CC §2937];
• documents related to mortgage foreclosure consultants [CC §2945 et seq.];
• a notice of delinquent mortgage payments [CC §2954.5];
• disclosures required for purchase money liens on residential property [CC §2963];
• conditional sales agreements and security agreements for mobilehomes and manufactured housing [Calif. Health and Safety Code §18035.5];
• a notice of cancellation or non-renewal of homeowners insurance [Calif. Insurance Code §§662, 678]; and
• documents subject to the Uniform Commercial Code on commercial transactions, such as the UCC-1 Financing Statement used to create a lien on personal property to finance real estate. [CC §1633.3(c)]

Editor’s note – Though the above documents are not covered by UETA, licensees may provide these electronically if any other law controlling these documents permits electronic transmission.

Additionally, use of electronic documents does not alter or replace any requirements that a notice, disclosure or other document be posted, displayed or publicly affixed. [CC §1633.8(b)]

For example, landlords may not electronically deliver a Notice to Pay Rent or Quit, or a Notice to Vacate. Likewise, electronic documents may not be used to satisfy requirements for posting a Notice of Sale for foreclosed property. These documents still need to be physically delivered or posted on a property. [CC §§3094, 1946, 2924.8 and 2924f(b)]

Further, an unlawful detainer (UD) action may not be served electronically, and needs to comply with requirements for posting a physical copy. [CC §§1633.3(c), 1162 et seq.]

Related topics:
disclosures

Posted by Sarah Kolvas | Apr 25, 2016 | Laws and Regulations, Property Management, Real Estate | 3

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

The Department of Housing and Urban Development (HUD) recently released new guidance for the Fair Housing Act (the Act). The new guidelines prohibit landlords from implementing blanket bans against prospective tenants who have a criminal history.

HUD’s announcement clarifying the scope of fair housing laws was spurred by the increased difficulty former criminals face when locating housing — a growing problem as those swept up in the decades-long wave of harsh sentences for drug offenses are re-entering the housing market.

The new guidance was announced in an effort to promote equal housing and end discriminatory tenant screening practices, which have, in effect, disparately impacted racial minorities — protected classes under the Act. Landlords who impose blanket bans on prospective tenants with criminal records are subject to civil penalties and tenant money losses involved in housing discrimination.

HUD’s guidance and disparate effects

The Fair Housing Act, part of the federal Civil Rights Act of 1968, was enacted to prevent discrimination in the sale, rental or financing of housing based on race, color, religion, sex, disability, familial status or national origin. [42 United States Code §3601, et seq.]

Notably, tenants with a criminal record are not among the defined protected classes under the Act. However, in a related court ruling last year, the U.S. Supreme Court decided the intent behind a housing policy is immaterial to whether that policy is discriminatory. Rather, a regulation or policy may be discriminatory and prohibited by the Act if it has the effect of disparately impacting — dissimilar or unlike consequences — a protected class under the Act.

As HUD points out, criminal history-based housing restrictions may disproportionately impact racial minority groups — in particular, black and Latino tenants — since these groups are convicted and incarcerated at higher rates than the general population. Thus, housing restrictions based on a tenant’s criminal history are prohibited under the Act.

With unequal impact in mind, HUD’s guidance effectively expands the Act’s protective provisions and regulates how landlords may consider criminal convictions when screening tenant applications.

Adjusting your screening policies

HUD’s guidance strictly prohibits landlords from enforcing a blanket ban against renting to all prospective tenants with any criminal record.

However, landlords are to consider a tenant’s criminal history on a case-by-case basis and may exclude tenants with specific convictions. California landlords take note: to lawfully implement housing restrictions based on a tenant’s criminal history, landlords are required to be able to prove their screening policy justifiably serves a substantial nondiscriminatory interest, e.g., when a prospective tenant’s criminal conviction poses a demonstrable threat to fellow tenants. [24 Code of Federal Regulations §100.500]

Thus, a landlord’s reliance on general assumptions and stereotypes that a tenant with a criminal conviction poses a criminal risk to other tenants is an inadequate reason for enforcing policies based on criminal records.

Further, landlords may only consider conviction records and may not use arrest records as the basis for housing restrictions.

When reviewing a tenant’s criminal conviction, landlords need to consider:

• the nature and severity of a conviction; and
• the amount of time that has passed since the crime occurred. [Green v. Missouri Pacific R.R. (1975) 523 F.2d 1290]

HUD recommends landlords also consider additional information about a tenant beyond the contents of a criminal record, such as:

• facts and circumstances surrounding the criminal conduct;
• the age of the tenant at the time of the crime;
• the tenant’s rental history before and after the conviction; and
• evidence of rehabilitation.

To ensure a screening policy does not run contrary to the new guidance under the Act, landlords need to universally apply their screening methodology to all prospective tenants equally. A landlord who uses criminal history as an alleged reason for denying housing to a member of a protected group, but fails to apply the same standard to members of other groups, is involved in perpetuating a discriminatory practice, a violation of Fair Housing laws.

The only exception to these guidelines occurs when a tenant has a conviction for the manufacturing or distribution of controlled substances. Here, a landlord may deny housing based on a conviction for drug manufacturing or distribution — though not based on a conviction for possession — without violating Fair Housing laws. [42 USC §3607(b)(4)]

Related article:

Screen tenants without incurring liability

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

Posted by Giang Hoang-Burdette | Oct 31, 2016 | New Laws, Tax | 0

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

Calif. Revenue and Taxation Code §4143
Amended by A.B. 2291
Effective date: January 1, 2017

Individual county boards of supervisors may elect to charge a fee to property owners who make property tax payments under partial payment arrangements. Amounts paid by the property owner are applied to the partial payment fee before being applied to penalties, interest, other costs or taxes due.

Read more:
Read the bill text.

Related topics:
property taxes, taxation

Posted by Carrie B. Reyes | Dec 27, 2016 | Finance, Laws and Regulations | 8

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

The battle over the Consumer Financial Protection Bureau’s (CFPB’s) right to exist has begun.

We recently reported on the plans of President-elect Trump to dismantle or overhaul the CFPB once he takes office in 2017. The first step in defanging the CFPB is to replace the current CFPB director, Richard Cordray, with someone more amenable to Republican policies of deregulation, which Republicans planned to do once President-elect Trump takes office.

But now it seems they will have to wait a bit longer.

What happened? It all started with a fine the CFPB levied against mortgage lender, PHH, back in 2015. Here is a timeline of events:

• In June 2015, the CFPB director required PHH to pay a $109 million fine due to kickbacks PHH received for referring clients to mortgage insurers. This amount was higher than the initial fine handed down in 2014 by a judge, which held PHH responsible for kickbacks made on mortgages closed after the Real Estate Settlement Procedures Act (RESPA) went into effect in July 2008. The $109 million fine imposed by the CFPB held PHH additionally responsible for all kickback payments received after RESPA took effect — even if the mortgage transaction had closed prior to RESPA’s rule prohibiting kickbacks.
• In October 2016, PHH won their appeal against the CFPB’s $109 million fine. The court determined that not only was the fine too high, since it held PHH responsible for kickbacks on mortgages originated before the 2008 rule, but it also ruled the CFPB’s leadership structure unconstitutional. This is because the CFPB director is virtually answerable to no one, since the U.S. President can only remove the director for cause. Other government agencies have leadership supervised and led by the U.S. President and can be replaced at will by the President. The new decision made the CFPB structure function as other agencies do, with leadership supervised and replaceable at any time by the President.
• In November 2016, following the presidential election, the CFPB filed an appeal against the court’s decision to restructure CFPB leadership. In its petition, the CFPB claims the court’s decision puts other independent agencies headed by a single director in jeopardy, including the Federal Housing Finance Agency (FHFA) and the Social Security Administration.

The moment they filed the appeal, the October decision was placed on hold until the court can revisit the matter. Therefore, when Trump takes office in January, he won’t be able to replace the current director at will. He will need to find cause — until the court makes a final decision.

Legal experts expect the CFPB’s petition to make it to the Supreme Court. The estimated time for the appeals process to run its course is two years or longer, according to a New York Times source. During that time, the current director is safe from removal without cause. In other words, Trump can’t fire him when he takes office just because he disagrees with his policies.

Editorial stance

Regardless of how leadership is structured at the CFPB, first tuesday is supportive of the CFPB’s current agenda to educate and inform borrowers, and take enforcement actions against lenders that violate RESPA.

The fact is, if the President is given unilateral authority to replace CFPB leadership at will, the CFPB’s policy agenda is likely to change with every new administration. In the case of the next, pro-deregulation administration, not only is this detrimental to the CFPB’s goal to regulate lending, but it’s also going to be plain confusing for mortgage and real estate professionals.

Since its inception in 2011, the CFPB has made numerous consumer financial protection laws, including changing how lenders and mortgage loan originators (MLOs) do business. A new director appointed by Trump will undoubtedly follow Trump’s plan, which is to halt new regulation while he figures out how to completely “dismantle” the Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB. This will include getting rid of the many reforms, mortgage forms and laws made in the past five years.

Trump wants a return to the deregulated years of the Millennium Boom, which led to a disastrous rise in adjustable rate mortgages (ARMs), predatory lending, home equity lines of credit (HELOCs) — and ultimately the foreclosure and financial crises. Sure, banks and homeowners profited immensely during the early to mid-2000s, but the aftermath was damaging for the entire nation and the economy is still recovering today.

Change is ahead for financial regulation. Whatever happens, first tuesday will keep you informed of shifts in the mortgage and housing market.

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

Posted by Carrie B. Reyes | Nov 7, 2016 | Bay Area, New Laws, Real Estate | 0

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

Multiple listing service (MLS) inventory is about level with last year as of September 2016, according to Zillow data. But the spread is uneven, as high-tier properties are sitting on the market for longer and taking more price cuts compared to low-tier properties, which are snapped up quickly by eager first-time homebuyers.

The situation is worse for California renters, who have seen their rents increase on average by 5% over the past year, according to Zillow. For perspective, the national average rent increase was a much lower 0.9%. The lack of rental inventory for low- and moderate-income residents is part of the push behind the rapidly rising rents experienced across the state, but especially in desirable coastal job centers like Los Angeles and the Bay Area.

In the Bay Area, one-third of residents are considering moving out of the region in search of lower housing costs and less traffic, according to Mercury News. This is alarming news for housing professionals.

While one solution to the low- and moderate-income housing squeeze is to sit around and wait for builders to get building, another thing current homeowners can do is to build a granny flat, also known as a casita or accessory dwelling unit (ADU) in their own backyard, above their garage or attached to their single family residence (SFR).

The extra unit allows homeowners to take in elderly or disabled family members who don’t have the income needed to pay market rent elsewhere, or rent out to tenants at the going rate, helping the homeowner pay their own housing costs.

But excessive fees and permitting issues have prevented many SFR homeowners from breaking ground.

 

New laws to encourage granny flats

Legislatures sense how high rents are impacting their residents, and have taken steps in 2016 to encourage the building of secondary units across the state to alleviate the inventory issue.

Assembly Bill (AB) 2406 authorizes local governments to allow for the construction of junior ADUs, defined as dwellings of no more than 500 square feet and fully contained within an SFR. For example, a homeowner may seal off part of their house, add a kitchenette and bathroom, and rent it out as a junior ADU. However, the high cost of fees and additional parking requirements some cities require has been a hindrance to junior ADUs.

The new law, which took effect on September 28, 2016, prohibits local agencies from requiring additional parking requirements for junior ADUs. It also treats these tiny units as part of the same SFR unit when it comes to installing water, sewer and power, so a separate connection fee cannot be required for the junior ADU.

Another new law, AB 2299, limits parking requirements for other types of ADUs, which may be attached or unattached to the main SFR, to one parking space per unit or bedroom. It also provides maximum standards a local government is authorized to issue on ADUs. For instance, an ADU may be built on the property even if it is zoned for SFR use only. Further, no setback is required for ADUs built in an existing garage and a setback of no more than five feet will be required from the side and rear of the lot for an ADU built over a garage.

Local ordinances may be looser than the standards set out in AB 2299, but cannot be stricter.

All steps in the right direction, but more work is needed on a large scale. Another step local and state governments can take to ensure more low-tier housing is built for the upcoming generation of homebuyers and renters is to provide incentives to builders to construct more low-tier condominiums and rental housing.

Related topics:
casita, low-tier property

Posted by Amy Thomas | Jun 6, 2016 | New Laws, Real Estate | 0

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

Calif. Government Code §27388
Amended by A.B. 661
Effective date: January 1, 2017

Any real estate instrument conveying or vesting real estate and subject to a documentary transfer tax is exempt from the $10 county recording fee which funds real estate fraud prevention.

Real estate instruments include:

• trust deeds;
• assignments;
• covenants, conditions and restrictions (CC&Rs);
• liens; and
• notices, such as a notice of default or notice of trustee’s sale.

Further, real estate instruments not subject to documentary transfer taxes are also exempt from the recording fee when the instrument is:

• simultaneously filed with another document subject to the tax; or
• recorded in the same business day as another related document subject to the tax.

To qualify for the exemption, the real estate instrument — regardless of whether it is directly subject to the documentary transfer tax — needs to have a statement attached which:

• declares the instrument is exempt; and
• lists the recording date and either the:
  • recorder’s identification number; or
  • previously recorded document’s book and page.

Read the bill text.

Related topics:

Posted by ft Editorial Staff | Sep 29, 2016 | Bay Area, Laws and Regulations | 6

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

Gentrification is a common concern in urban California due to excessive home and rental prices. Although Bay Area urbanites of all sorts are ready to flee in droves, many are unaware of the deep toll housing costs and subsequent gentrification have already taken on the area’s minority populations.

In response to this growing urban housing crisis, San Francisco implemented the Neighborhood Resident Housing Preference (NRHP).

The NRHP allocated 40% of privately subsidized or city-subsidized units in new residential developments to San Francisco residents with at least one member of the household whose primary residence is located within:

• the same Supervisorial District as the new residential development; or
• a half mile around the new residential development.

Qualified residents were to be entered into lotteries for one of the allocated units. San Francisco intended the preference program to benefit minority residents who otherwise might likely be expelled from the area due to excessive housing costs. Particularly, San Francisco has suffered a major loss of African-American residents, who used to make up 13.7% of the city population in 1970 — and currently account for only 5.7% of the population in today’s impossible housing market.

However, the NRHP drew inadvertent negative attention from the U.S. Department of Housing and Urban Development (HUD), which ultimately decided the preference program violated the Federal Fair Housing Act of 1968. HUD cited the program’s potential to perpetuate segregated neighborhoods as the main reason for the rejection — an unintentional disparate impact the likes of which were denounced by the U.S. Supreme Court in June of 2015. [Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (2015) 135 U.S. 2507]

 Gentrification, housing costs and California minorities

HUD’s rejection of the NRHP certainly isn’t the first obstacle minority residents in California face in the pursuit of housing, nor will it be the last. Minority homeowners in California took the hardest hits in the housing crisis. For example, one in ten minority homeowners lost their homes to foreclosure, whereas only one in 25 white homeowners lost their homes to foreclosure due to the crisis.

Additionally, minority homebuyers have been subjected to discriminatory lending practices and unlawful steering by unethical real estate agents and lenders urging buyers to overextend their income. Even lending practices which aren’t inherently discriminatory have disparate effects upon minorities. For example, minority homebuyers were twice as likely to obtain riskier nonconventional mortgage financing than white homebuyers as of 2014, according to a report on recent Home Mortgage Disclosure Act (HMDA) data.

Thus, San Francisco’s altruistic intentions make sense. Low- and middle-income homeowners and renters throughout California’s largest metropolitan areas steadily diminish as stagnant wages and expensive commutes make the costs of living unmanageable. These residents, many of whom grew up in the Bay Area, need to relocate to maintain any semblance of a healthy debt-to-income ratio (DTI) necessary for future homeownership in less demanding locations.

Of course, the prominent result of diminishing minority populations and low- to middle-income populations is significant gentrification. Cities like San Francisco which celebrate diversity and vibrant cultural arts are unable to retain the variance which ultimately lures businesses and employees to the Bay Area — with the obvious exception of the tech elite. This high-income group bleeds into many traditionally diverse cities to the detriment of their original residents, like those facing an impeding exodus from East Palo Alto.

How real estate agents can help

Real estate agents can’t fix the urban housing crisis, but that doesn’t mean they aren’t able to help. Agents need to hold themselves accountable to ensure their minority clients are given equal opportunity to obtain housing. To do so, agents ought to brush up on the Federal Fair Housing Act to ensure their practices are fair and accommodating to all homebuyers and renters in need of their services.

Need to refresh your knowledge of the Federal Fair Housing Act? Check out the Fair Housing chapter of Agency, Fair Housing, Trust Funds, Ethics and Risk Management, available through the first tuesday Realtipedia.

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

Posted by Giang Hoang-Burdette | Nov 16, 2016 | New Laws, Real Estate | 0

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

Calif. Government Code §65583.2
Amended by A.B. 2208
Effective date: January 1, 2018

A city or county preparing the housing element in its general plan needs to consider airspace above sites owned or leased by the city or county as land suitable for residential development. This includes sites which are:

• zoned for residential use; or
• zoned for nonresidential use and suitable for residential rezoning.

The California Department of Housing and Community Development (HCD) will provide guidance to cities and counties on how to properly survey and account for these types of sites.

Read more:

Read the bill text.

Editor’s note — This new law attempts to make headway on solving California’s urban low-cost housing shortage. However, the identification of these sites does not mean building up on them is actually required or, indeed, feasible. The end result may be the illusion of an increase in land suitable for residential development, but no actual up-building.

first tuesday has long advocated more permissive zoning to combat housing shortages. Municipal governments also need to loosen zoning requirements to encourage up-building on privately owned property.

Related articles:

Mixed-use zoning — fights crime, poverty

California’s zoning pioneers

 

 

Related topics:
zoning

Posted by Giang Hoang-Burdette | Oct 17, 2016 | Marketing Flyers, New Laws, Real Estate, Your Practice | 1

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

Calif. Business and Professions Code §10159.7
Amended by S.B. 710
Effective date: August 29, 2016

On signs and advertisements requiring a responsible broker’s identity, a California Bureau of Real Estate (CalBRE) licensee may identify a responsible broker by the:

• broker’s name under which they are licensed and do business; or
• both the broker’s name and CalBRE license number.

Editor’s note — This law fixes an error made by the legislature which indicated both the responsible broker’s name and CalBRE license number were required on all advertisements using a fictitious business name or team name. This clarification means signs already printed with just the responsible broker’s licensed name do not need to be reprinted to include the responsible broker’s CalBRE license number.

However, A.B. 1650 expands the type of advertisements requiring identification of the responsible broker, beginning January 1, 2018.

Related articles:

Updated CalBRE licensee identification requirements on signs and advertising

Regulations for fictitious business names and team names under a responsible broker

Read more:
Read the bill text.

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

Posted by Giang Hoang-Burdette | Dec 20, 2016 | New Laws, Property Management, Real Estate, Tax | 0

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

Calif. Revenue and Taxation Code §§214, 214.17, 259.14
Amended and added by S.B. 996
Effective date: January 1, 2017

Under the existing “welfare exemption” law, a nonprofit corporation is exempt from up to $20,000 in annual property taxes, related penalties and interest on residential rental properties it owns for which 90%  or more of the tenants are low-income households paying rent under affordable rental housing programs.

Beginning January 1, 2017, the welfare exemption limit has been increased from a $20,000 annual property tax exemption to an annual exemption of property taxes due on up to $10,000,000 of qualifying residential rental property.

Additionally, escape assessments on qualifying residential rental property will not be levied if the total of the escape assessments, property taxes, penalties and interest due on all  qualifying residential rental properties for the year are less than or equal to $100,000.

Residential rental property which qualified for the old $20,000 welfare exemption between January 1, 2013 and December 31, 2016 will have annual property taxes, related penalties and interest up to $100,000 forgiven.

The claim for a welfare exemption is now to be accompanied by an affidavit which includes:

• a list of units occupied by low-income tenants which qualify the property for the exemption;
• the actual household income of each low-income tenant;
• the maximum rents which may be charged to each low-income tenant; and
• the actual rents charged to each low-income tenant.

The contents of the affidavit may not contain personally identifiable information, and will not be made public record.

Read more:

Read the bill text.

Editor’s note — This is another law which seeks to address the lack of housing units available for low- and moderate income California residents. For analysis of California’s low-income housing shortage, see:

California low- and moderate-income families forced out of the cities

California’s housing availability crisis stunts business growth

Related topics:
affordable housing, low-income housing, property taxes, rental property

Posted by ft Editorial Staff | Nov 7, 2016 | Commercial, Investment, Laws and Regulations, Property Management, Real Estate, Recent Case Decisions | 0

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

Morlin Asset Management, LP v. Edward Murachanian

Facts: A commercial tenant and landlord enter into a lease agreement for a unit in a commercial complex. The lease agreement contains an indemnification clause, requiring the tenant to indemnify the landlord against any claims or liability arising out of the tenant’s use of their individual unit. Later, a cleaning worker hired by the tenant falls and injures themselves in a common area outside the tenant’s unit. The worker files a lawsuit against the landlord for negligence due to alleged safety hazards in the common area.

Claim: The landlord seeks to avoid liability and compel the tenant to indemnify the landlord, claiming the tenant is liable for the worker’s injuries under the indemnification clause in the lease agreement since the tenant’s hiring of the worker to clean their unit constitutes their use of the premises and therefore was the cause of the worker’s injuries.

Counter claim: The tenant claims they are not liable for the worker’s injuries since the indemnification clause only applies to injuries occurring within the tenant’s leased unit, not in a common area, and the tenant’s employment of the worker did not cause the injuries.

Holding: A California court of appeals holds the tenant is not required to indemnify the landlord under the lease agreement since the indemnification clause only protects the landlord against claims for injuries occurring within the tenant’s leased unit, not in a common area controlled by the landlord, and the tenant’s hiring of the cleaning worker does not constitute a cause of the injuries. [Morlin Asset Management, LP v. Edward Murachanian (February 8, 2016)_CA4th_] [dfads params=’groups=37813&limit=1&orderby=random’]

Related topics:
cramdowns, lease agreement

Posted by ft Editorial Staff | May 31, 2016 | Fair Housing, Real Estate, Recent Case Decisions | 0

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

Avenue 6E Investments, LLC v. City of Yuma

Facts: A developer with a history of creating affordable housing projects for diverse populations applies to the local government to build a new housing project. The local zoning commission unanimously approves the project and forwards the application to the city council which holds a public hearing on the project. Neighboring homeowners attend the public hearing and complain about the development’s appeal to minority families. The city council uncharacteristically denies the developer’s rezoning request, its first denial of such an application in three years.

Claim: The developer seeks to sue the city for disparate treatment of their affordable housing project, claiming the city’s refusal to rezone land to permit the development violates the Fair Housing Act (the Act) and the Equal Protection Clause of the U.S. Constitution since the city council discriminated against the project to appease their constituents’ racist objections in spite of regular practice and the recommendation of the zoning commission.

Counterclaim: The city seeks to dismiss the developer’s claims of disparate treatment, claiming their actions are not discriminatory since similarly-priced housing is available elsewhere in the city for minority residents.

Holding: A United States court of appeals holds the developers were discriminated against according to the Act and the Equal Protection Clause and may pursue the city for its actions since the city’s decision was based on appealing to racist constituents despite the recommendations of the zoning commission. [Avenue 6E Investments, LLC v. City of Yuma (March 25, 2016) __F3d__]

Editor’s note — In a wide-ranging opinion, the court chronologizes  a history of the Act from the assassination of Dr. Martin Luther King Jr., to the conclusions of the Kerner Commission, the problems caused by housing segregation and the “unconscious prejudices and disguised animus that escape easy classification.” In this case, the types of discrimination faced by the developer and the potential homebuyers are both disguised and obvious.

The court makes clear the language used by the neighbors is racially-biased against Hispanics. Some homeowners go so far as to object to the possibility of “unattended juveniles roaming the streets,” behavior the court notes might also be called “letting children play in the neighborhood.” That the city denied the developer’s request for zoning changes in spite of these arguments is disconcerting.

In marketing homes for sale or rent, it is important to keep in mind the Act renders it unlawful to, among other things “make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.” [42 United States Code § 3604(a)]

Read the case text.

Related topics:
affordable housing, implicit discrimination

Posted by Renee Sogueco | Aug 15, 2016 | Investment, Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Corporations Code §17707.01 and 17707.02
Amended by A.B. 1722
Effective: January 1, 2017

A limited liability company (LLC) may now be dissolved by a vote of 50 percent or more of the voting interests of the LLC members.

Previously, dissolution required a majority of members — with voting interests or otherwise — to approve dissolution.

A certificate of cancellation of the articles of incorporation by a domestic LLC which has never conducted business may now be effected by the signature of 50 percent or more of the:

• voting interests of members;
• the voting interests of managers, if the LLC has no members; or
• individuals who signed the articles of organization, if the LLC has no members or managers.

[dfads params=’groups=37813&limit=1&orderby=random’]

Related topics:
llc, limited liability company,

Posted by Carrie B. Reyes | Sep 12, 2016 | Buyers and Sellers | 0

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

In the aftermath of the excess lending and de-regulation of the Millennium Boom, in some respects lenders have become a bit too cautious.

The issue:

1. An expecting, working parent on maternity or paternity leave applies for a mortgage.
2. For various reasons, the lender refuses to consider the individual’s paid maternity/paternity leave or disability pay when qualifying the homebuyer for a mortgage.
3. The homebuyer is given a choice between:
   • excluding the income of the parent on leave towards mortgage qualification (which often means being denied for the mortgage amount sought);
   • or waiting to re-apply after they return to work once the parent’s leave is over.

This scenario occurs fairly often, but it’s a violation of the Fair Housing Act of 1968. The Fair Housing Act prohibits lenders from refusing to grant a mortgage based on an applicant’s:

• race;
• color;
• national origin;
• religion;
• sex;
• handicap; or
• familial status (covering pregnancy and parents on maternity or paternity leave). [42 United States Code 3604]

The Department of Housing and Urban Development (HUD) reports steady complaints of lender discrimination against working parents on maternity/paternity leave since 2010.

The likely reason for the uptick in 2010 is tightened credit access following the 2008 recession, as Fannie Mae and Freddie Mac became more likely to force the bank to “buy back” any mortgages that don’t comply with their strict underwriting criteria. As a consequence, lenders have refrained from qualifying buyers with less than stellar finances and buyers are forced to jump through extra hoops to qualify.

Editor’s note — Neither Fannie Mae nor Freddie Mac direct a lender to treat an applicant on maternity/paternity leave pay differently, but some lenders choose to avoid the perceived risk of new or soon-to-be parents or simply don’t expect the parent to return to work after their leave is up.

Due to the less certain financials of new parents, lenders don’t want the increased risk of having to buy back a loan they did not underwrite properly. Therefore, they seek to only consider guaranteed income for qualifying purposes. But these lenders are unaware that refusing to consider an applicant on maternity/paternity paid leave or disability pay is a violation of the Fair Housing Act.

Lenders who violate the Act risk having to pay their victims of discrimination thousands of dollars in relief.

Agents: has your client been a victim of lender discrimination? Send them to HUD’s website to file their complaint online. Or, if you are in California, call the San Francisco HUD office at: 800-347-3739.

Related topics:

Posted by ft Editorial Staff | Jul 25, 2016 | Laws and Regulations, Letters to the Editor | 0

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

Question:

How is a prescriptive easement made? Does someone have to commit adverse possession?

Answer:

A prescriptive easement is the right to use another’s property, established by adverse use of the property for a period in excess of five years without a claim of ownership. Further, prescriptive easements are similar to taking adverse possession, but not exactly the same.

For example, consider a property owner who has used the roadway of an adjoining property to access their vacation home for over five years. The owner has never received permission from the neighbor to use the roadway.

The neighbor sells their property to a buyer who informs the owner they may no longer use the roadway. The owner claims their open and continuous use of the road to access their property for more than five years entitles them to a right-of-way easement over the adjoining property.

Is the owner entitled to a roadway easement over the adjoining property owned by the buyer?

Yes! A prescriptive easement is established by the adverse use of another’s property for a period in excess of five years. [Thomson v. Dypvik (1985) 174 CA3d 329]

An easement created by prescription is similar to acquiring land by adverse possession. The difference is prescription establishes the right to mere use of another’s property, whereas adverse possession is an actual taking of exclusive possession under a claim of ownership and the payment of all property taxes.

To meet the legal requirements for acquiring an easement by prescription, the adverse use needs to be:

• obvious enough to give the owner of the property notice of the use;
• a continuous and uninterrupted pattern of use;
• a use unauthorized by the owner of the property;
• used under a claim of right; and
• used for a period of five or more years without the owner acting to terminate the adverse use.

The five-year requirement of uninterrupted use continues with the transfer of the benefitting property to new owner(s) as long as the new owner(s) continues the same unauthorized use of the burdened adjoining property established by the previous owner, called tacking. [Jones v. Young (1957) 147 CA2d 496]

A property owner who has fulfilled the requirements for a prescriptive easement but has not filed paperwork or taken legal action on the easement does not waive their rights to the prescriptive easement. [Connolly et al. v. Trabue et al. (2012) 204 CA4th 1154]

A prescriptive easement does not bar an owner of property burdened by the easement from all use of their land. To obtain the exclusive use and possession of real estate, a claim for adverse possession needs to be pursued which, unlike a prescriptive easement, requires the payment of liens and taxes on the property by the adverse possessor. [See first tuesday Realtipedia, Legal Aspects of Real Estate, Chapter 14 “Creating an easement”]

Related topics:
adverse possession, easements, prescriptive easement

Posted by ft Editorial Staff | Jul 25, 2016 | Laws and Regulations, Letters to the Editor, Real Estate | 0

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

Question:

Is an arbitration award reviewable by a court of law when the arbitrator misapplies the law?

Answer:

An arbitrator’s award will not be reviewed by a court for errors of facts or law, even when the error is obvious and causes substantial injustice. [Hall v. Superior Court (1993) 18 CA4th 4271]

If a buyer and seller initial an arbitration provision in a purchase agreement, they agree to give up their right to a jury trial and instead submit all disputes arising from the transaction to a third-party arbitrator for a final and binding decision. Unless the arbitration provision specifically states otherwise, a buyer and seller who initial the provision also agree to give up their rights to:

• discovery to prepare a defense; and
• judicial appeal.

Arbitration was conceived decades ago as an alternative to litigation to avoid the cost and time of resolving minor disputes via the judicial system. Thus, to further this end, arbitration awards are only correctable in very limited circumstances. This arrangement often results in arbitrary and absurd legal consequences in direct conflict with the reasons and practical purposes for its inception — to say nothing about the contractual intentions of the individuals in the dispute.

California law permits a court to review and correct an arbitrator’s award only when:

• the arbitrator exceeds their authorized powers;
• the arbitrator acts with fraud or corruption;
• the arbitrator fails to disclose grounds for their disqualification of a dispute;
• the arbitrator’s award was procured by corruption, fraud or other misconduct;
• the arbitrator’s refusal to postpone a hearing substantially prejudiced the rights of one of the individuals in the dispute; or
• the arbitrator deprives an individual of their statutory rights. [Calif. Code of Civil Procedure §1286.2; Richey AutoNation Inc. (2015) 60 Cal.4th 909]

Legal errors and misapplication of law by the arbitrator do not fall under these criteria.

An arbitrator, unlike a judge in a court of law, is not bound by the rules of law controlling analysis when making an award in a dispute. Arbitration is arbitrary. Even when the arbitrator agrees to follow applicable California real estate law, their erroneous award, unlike an award of a court, is final — severely disadvantaging buyers and sellers who are asked by their agents to initial the arbitration provision and agree to submit disputes to arbitration (which they do not have to do).

For the reason that a judge needs to be involved to protect the public, arbitration provisions are not included in trust deeds, consumer mortgage agreements or rental or lease agreements. [12 Code of Federal Regulations §1026.36(h)]

The Consumer Financial Protection Bureau (CFPB) has also recently sought to prohibit mandatory arbitration provisions to better protect consumer rights.

The only way to ensure a defect in the arbitrator’s award is correctable is to state in the arbitration provision the award is “subject to judicial review.” Without this language, the award resulting from arbitration brought under the provision is binding and final.

Importantly, the arbitration provision included in most boilerplate real estate trade union forms does not allow for judicial review of the arbitrator’s decision. The buyer and seller, by initialing the arbitration provision, agree to relinquish their rights to appeal the arbitrator’s award in a court of law. Agents need to protect their client by advising on the rights lost on agreeing to arbitration, as failure of this duty will impose liability with the arbitration clause continuing to lose public favor.

Related topics:
arbitration provision

Posted by ft Editorial Staff | Mar 15, 2016 | Laws and Regulations, Letters to the Editor, Licensing and Education, Real Estate, Your Practice | 3

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

Question:

What is the new Office Management and Supervision requirement for California Bureau of Real Estate (CalBRE) continuing education (CE)?

Answer:

A real estate licensee’s 45-hour California Bureau of Real Estate (CalBRE) CE renewal requirement now includes three hours of Office Management and Supervision.

The Office Management and Supervision course is mandated by the CalBRE for both brokers and sales agents.

Office Management and Supervision applies to an individual renewing their real estate license when the license:

• expires on or after January 1, 2016; or
• has expired and is within the two-year renewal grace period.

While the need for a minimum of 45 hours of CE to renew a CalBRE license was not altered, the subjects mandated to be studied as part of the 45 CE hours were expanded to include the Office Management and Supervision course.

Sales agents renewing for the first time

The Office Management and Supervision course is optional for sales agents renewing for the first time.

A CalBRE sales agent renewing for the first time needs to complete 45 hours of CE, consisting of:

• 18 hours of Consumer Protection courses;
• 15 hours comprised of five separate three-hour courses in:
  • Agency;
  • Fair Housing;
  • Trust Funds;
  • Ethics; and
  • Risk Management; and
• the remaining 12 hours composed of either Consumer Protection or Consumer Service courses, including the Office Management and Supervision course if they choose to take it.

Editor’s note — first tuesday’s Agency, Fair Housing, Trust Funds, Ethics and Risk Management courses are collectively called AFTER for easy reference.

Brokers renewing for the first time

CalBRE brokers renewing for the first time now need to complete 45 hours of CE, consisting of:

• 18 hours of Consumer Protection courses;
• 18 hours comprised of six separate three-hour courses in:
  • Agency;
  • Fair Housing;
  • Trust Funds;
  • Ethics;
  • Risk Management; and
  • Office Management and Supervision; and
• nine hours composed of Consumer Protection or Consumer Service

Brokers and sales agents beyond first renewal

While brokers and sales agents beyond their first renewal are required to include the Office Management and Supervision course in their 45 CE hours, the CalBRE allows them the option of choosing how to study it.

A licensee may study the Office Management and Supervision material separately or aggregated into an eight-hour “survey” course with the five mandated AFTER courses.

Here, the 45 CE hours will consist of:

• 18 hours of Consumer Protection courses;
• mandated topical courses, structured as either:
  • 18 hours comprised of six separate three-hour courses in:
    • Agency;
    • Fair Housing;
    • Trust Funds;
    • Ethics;
    • Risk Management; and
    • Office Management and Supervision; OR
  • eight hours in a survey course covering all six subjects; and
• the remaining hours composed of Consumer Protection or Consumer Service

first tuesday CE packages

All first tuesday 45-hour CE enrollments automatically include the newly mandated three hours of Office Management and Supervision.

Each CE package includes 18 CE hours consisting of the six three-hour topical courses in Agency, Fair Housing, Trust Funds, Ethics, Risk Management and Office Management and Supervision. Further, licensees choose from an exclusive collection of Consumer Protection courses to satisfy the remaining 27 CE hours, such as Economic Trends in California Real Estate and Landlords, Tenants and Property Management.

Thus, first tuesday CE packages satisfy CalBRE renewal CE requirements for both sales agents and brokers in all situations, whether a first time or subsequent renewal.

Ready to complete your CE? Sign up for a 45-hour CE package online here.

(Click on the infographic for a larger view)

Related topics:
brokers, consumer protection, continuing education (ce), department of real estate (dre), sales agent

Posted by ft Editorial Staff | Mar 7, 2016 | Buyers and Sellers, Laws and Regulations, Letters to the Editor, Real Estate | 0

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

This poll will close on March 21, 2016.

 

Question:

When is an arbitration provision in an agreement enforceable?

Answer:

An arbitration provision — when present in a real estate purchase agreement and initialed by both buyer and seller — grants a third-party arbitrator the authority to hear and resolve a dispute. On hearing a dispute, the arbitrator issues a binding award in favor of the buyer or seller as a remedy for the dispute.

In return for agreeing to arbitration of a dispute, the buyer and seller relinquish their rights to a judge or jury trial in a court and any appeal from the arbitrator’s decision, as well as discovery procedures to prepare for arbitration.

In real estate single family residential (SFR) transactions, the arbitration provision is voluntarily entered into when both the buyer and seller initial the provision in the purchase agreement, an activity controlled by state law. The provision is enforceable by either the buyer or the seller:

• when both parties initialed the provision agreeing to submit disputes to arbitration; and
• as a separate agreement from the purchase agreement which contains the provision.

The arbitration provision is a separate agreement

The arbitration provision in a purchase agreement is an agreement separate from the purchase agreement in which it is embedded, a condition called severability. [Prima Paint Corporation v. Flood & Conklin Mfg. Co. (1967) 388 US 395]

As a result, when a buyer or seller, or both, initial the provision, the underlying purchase agreement is not affected by what has been done regarding initialing the provision. Thus, any flaw or error in the purchase agreement does not alter the enforceability of the arbitration agreement created when both participants initialed the provision.

When a purchase agreement is determined to be unenforceable, the arbitration agreement remains enforceable as a separate agreement. The buyer and seller are legally bound to submit their dispute to arbitration, even when disputing the enforceability of the actual purchase agreement. It is only when the arbitration provision itself is flawed or against public policy that the arbitration agreement may be deemed void and unenforceable. [Prima Paint Corporation, supra]

As separate from the purchase agreement, an arbitration provision does not become enforceable or function as a counteroffer to the underlying purchase agreement when only one participant initials the provision. The act of initialing the arbitration provision is not considered a modification to the purchase agreement as the arbitration provision is separate from the terms and conditions of the purchase agreement itself.

Thus, the arbitration provision in a purchase agreement remains a separate offer by the buyer or seller who initials it, which may be accepted or ignored by the other participant and has no impact on the enforceability of the purchase agreement.

Mutual agreement required

A buyer or seller is only required to submit a dispute to arbitration which they have agreed to arbitrate.

However, an arbitration agreement between a buyer and seller is not enforceable — even against a consenting participant who initials the provision — when only one participant agrees to submit disputes to arbitration.

Both buyer and seller need to initial the arbitration provision to form an enforceable agreement between them to arbitrate. [Stirlen v. Supercuts Inc. (1997) 51 CA 1519]

An arbitration agreement initialed by only the buyer or only the seller is essentially an offer to arbitrate which the other person did not accept by entering their initials.

Thus, even though the buyer or seller has initialed and consented to submit all disputes to arbitration, they cannot be compelled to arbitrate unless the other person also initialed the provision at the time they entered into the purchase agreement — as required to form any binding agreement. [Marcus & Millichap Real Estate Inv. Brokerage Co. v. Hock Inv. Co. (1998) 68 CA 83]

Related article:

The problem with the arbitration provision

Related topics:
arbitration, arbitration provision, purchase agreement

Posted by Giang Hoang-Burdette | Sep 29, 2016 | Licensing and Education, New Laws | 1

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

Calif. Business and Professions Code §10082
Amended by A.B. 685
Effective date: January 1, 2017

An unlicensed person fined or cited by the California Bureau of Real Estate (CalBRE) for unlawfully engaging in real estate activities requiring a CalBRE license cannot be eligible for licensure until they have paid the fines and complied with the terms of the citation.

Calif. Business and Professions Code §10013
Amended by A.B. 685
Effective date: January 1, 2017

A CalBRE salesperson may now refer to themselves as a CalBRE salesperson, a salesman or a saleswoman.

Related topics:
department of real estate (dre), salesperson

Posted by Amy Thomas | Jan 11, 2016 | Buyers and Sellers, Economics, Real Estate | 0

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

Credit scores for homebuyers using purchase-assist financing have declined for the sixth straight month since May, according to Ellie Mae’s latest Origination Insight Report (OIR).

Ellie Mae is a software company that processes nearly a quarter of mortgage applications nationally. Ellie Mae’s OIR is based on data collected from closed and denied applications for conventional mortgages and mortgages issued or insured by:

• the Federal Housing Administration (FHA); and
• the Department of Veterans Affairs (VA).

Data collected from each mortgage application include the applicant’s:

• FICO score;
• loan-to-value ratio (LTV); and
• debt-to-income ratio (DTI).

Related: How FICO credit scores work

The OIR released by Ellie Mae for November 2015 reveals yet another drop in FICO scores, with the average score of 721 – down from 722 in October and 730 in May 2015.

What low credit scores mean for home sales

Lower credit scores may not seem like an issue just yet. However, the Federal Reserve (the Fed)’s recent interest rate increase suggests credit scores will become increasingly more critical in the coming years as the economy normalizes in its current expansion.

Buyers with low credit scores are required by lenders to accept higher interest rates on their mortgages to compensate for the lender’s increased risk of default, and thus loss. Compound the higher rates required for mortgage qualification with the bond market’s eventual mortgage rate increases, and homeownership becomes a lofty dream out of reach for many potential buyers.

The effects of the rate increase aren’t expected to manifest for fixed rate mortgages (FRM) until at least mid-2016, and the immediate effect on adjustable rate mortgages (ARM) is minor. However, increased interest rates will eventually cause those with low credit scores who do manage to obtain financing to face doubly-increased interest rates. This dual punch is a hard hit to buyers whose lack of personal savings and stagnant incomes (which likely brought on the low credit scores) previously benefitted from the zero lower-bound rates of the past six years.

These cumulative, restrictive conditions make it more difficult for buyers with low credit scores to meet the requirements for a qualified mortgage (QM). Thus, these conditions will reduce the amount of money they can borrow, or worse, lock potential buyers out of the market. As a result, this will exert downward pressure on home prices.

Additionally, mortgage lenders are of no help in resolving the worsening conditions. They harbor a universal contempt for the regulations that restored fundamental loan documentation and qualification rules to the practice of originating consumer mortgages. Lenders will not be happy until they have proven by their resistance that these regulations are killing the real estate market.

To reiterate, buyers’ present difficulties making a traditional 20% down payment and increasing their personal savings is to kick a long-dead, possibly now-skeletal horse. However, these factors continue to affect results in the real estate industry – especially since they contribute to the delayed entrance into homeownership by members of Generation Y (Gen Y) and other struggling first-time buyers who otherwise boost the market in normal economic times.

Re: Origination Insight Report, November 2015 from Ellie Mae

Related topics:
conventional mortgage, credit score, fha

Posted by Carrie B. Reyes | Mar 21, 2016 | Buyers and Sellers, Charts, Real Estate | 2

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

California agents and homebuyers are feeling the squeeze of low inventory.

The number of homes for sale is 9% below a year earlier as of January 2016. This continues a steady, nationwide decline in home inventory from 2011. In fact, today’s home inventory is 38% below what it was in mid-2011. Granted, 2011 likely had an oversupply of homes on the market. But is today’s inventory too low to meet homebuyer demand?

To provide an answer, let’s look at the trends:

The chart above shows California’s home inventory available for sale—the blue line—alongside the number of homes sold, monthly—the red line. For clarity, the home sales volume line is magnified so the trend is easily seen, and corresponds with the right axis. The home inventory line corresponds with the left axis and this number is in fact much larger than the number of homes that sell each month.

When the home sales volume number is expanded and placed on top of the inventory line, as in the chart above, a trend takes shape: when sales volume declines, home inventory goes up. When sales volume increases, inventory goes down. This is axiomatic.

Most recently, home sales volume slowed in 2014, ending the year 7% lower than at the beginning of that year. As a result, inventory rose. This occurred because homes were selling more slowly than new homes came on the market. In 2015, the reverse occurred. Sales volume took off, ending the year 9% higher than the end of 2014. Demand for homes increased more quickly than new homes came on the market, thus inventory declined.

Therefore, while it is true that inventory is low at the start of 2016, it’s for a very good reason. California had a great year for home sales volume in 2015, and a lower inventory is the price paid for increased home sales.

All of this has to do with homebuyer demand, which ultimately drives the direction the housing market takes. As we head through 2016, demand continues to outpace inventory. This is good news for sellers, as more demand for a shrinking supply leads to higher prices.

Inventory declines across California’s regions

In the Los Angeles metro area, inventory peaked in mid-2011 with 49,000 homes on the market. In January 2016, there were 18,100 homes on the market, tied for the lowest number of homes on the market since after the 2008 recession, according to Zillow.

In Riverside, inventory also peaked in mid-2011, at 29,400 homes for sale. It bottomed in 2013 with under 13,000 homes on the market. In January 2016, there are 16,400 homes for sale.

Sacramento is not unlike Riverside, also having bottomed in 2013 at just 3,800 homes on the market. January 2016 saw the lowest number of homes for sale since 2013, with 4,700 homes for sale. The last peak was in mid-2011 at 10,400 homes available for sale.

San Diego’s 2011 peak saw nearly 18,000 homes on the market in a single month. As of January 2016, there were 5,600 homes for sale, the lowest since the 2008 recession.

On the other hand, San Francisco has experienced a consistently low inventory since 2013. 4,200 homes were on the market in January 2016 in the San Francisco area. This is down from the peak of nearly 14,000 homes on the market in mid-2011. After descending from its 2011 peak, it’s bumped along in the 4,000-5,000 range each month since 2013.

San Jose has experienced a trend similar to San Francisco’s. Having remained consistently low since 2013, there were just 1,800 homes on the market in January 2016. This is down from the 2011 peak of 5,200 homes.

Low inventory points to future construction

As inventory continues to shrink in California, what’s a homebuyer to do?

Those determined to buy will not be shut out of the market — it just may take a bit longer for their homeownership dreams to come true.

If your homebuyer is frustrated with the lack of available inventory, consider pointing them to new construction. In fact, the number of new homes sold before construction has even broken ground is at a decade-high, according to Trulia. Construction on 32% of new home sales had not yet been started before being purchased as of January 2016. (This is good for homebuyers, as new construction includes extra energy efficient improvements, which will ultimately reduce the homeowner’s monthly costs).

Homebuyers reluctant to compete for today’s low inventory of homes may also turn their sights to the suburbs, where inventory is more plentiful and bidding wars less common. Further, areas with the lowest inventory are also experiencing a smaller increase in home prices. Rapid home price growth will eventually pull back home sales volume in these areas, and inventory will begin to climb again. Expect this to occur towards the end of 2016 or beginning of 2017.

Meanwhile, residential construction will continue to grow in 2016 and in the coming years as first-time homebuyers finally hit the market after years in the shadows following the 2008 recession.

Related topics:
homebuyer demand, housing inventory, residential construction

Posted by ft Editorial Staff | Feb 17, 2016 | Finance, Laws and Regulations, Real Estate, Recent Case Decisions | 1

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

Bank of America v. Caulkett

Facts: A homeowner obtains two mortgages to fund their purchase of a property. The fair market value (FMV) of the property decreases, resulting in the amount owed on the first mortgage to exceed the FMV of the property. The homeowner experiences an economic hardship and petitions for Chapter 7 bankruptcy to reduce their mortgage debts.

Claim: The homeowner seeks to eliminate the second mortgage from title, claiming the extinguishment is proper since the amount of the first mortgage exceeds the value of the property leaving no interest in the property to be secured by the second mortgage.

Counter claim: The second mortgage holder claims their second mortgage may not be eliminated as a lien since their interest is a secured debt allowed under bankruptcy rules.

Holding: The United States Supreme Court holds the homeowner may not extinguish the second mortgage from title to the property when the property’s FMV is less than the first mortgage amount since the second mortgage holder’s interest is a secured claim of an allowed debt under bankruptcy law, regardless of the homeowner’s negative equity position in ownership. [Bank of America v. Caulkett (June 1, 2015)_U.S._]

 

Editor’s note — It is important to note the type of bankruptcy a homeowner files drastically alters the treatment of mortgage liens in bankruptcy. The court’s ruling here only applies to lien-stripping in Chapter 7 bankruptcy and does not alter a homeowner’s ability to strip a junior lien under Chapter 13 bankruptcy proceedings.

Chapter 7 bankruptcy permits the discharge of all debt. The homeowner’s nonexempt assets are then liquidated and disbursed to the homeowner’s creditors and determined by the bankruptcy court. [11 USC §701 et seq.]

However, any property subject to a mortgage lien remains encumbered by the lien even after debt is discharged in bankruptcy and the homeowner is no longer required to cure their debt. Thus, though the homeowner is not liable for mortgage payments and may not be pursued by the mortgage holder, the secured mortgage holder’s lien remains enforceable. The mortgage holder retains the right to foreclose on the property (depending on the priority of the lien) or leave the lien attached until it is settled through negotiations between the mortgage holder and homeowner (e.g., a reduced one-time payment, or an agreed-to number of payments over a period of time).

Chapter 13 bankruptcy requires all secured and unsecured creditors to be repaid under a three to five year repayment plan. Any debt remaining at the end of the payment plan is discharged. This allows homeowners to halt foreclosure proceedings through an automatic stay and cure their mortgage delinquencies over time — keeping their home (and maintaining the status quo). [11 USC §1301 et seq.]

The owner’s property may later be foreclosed on by the mortgage holder if the homeowner becomes delinquent on their mortgage payments again. However, unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy allows a fully underwater junior lien to be classified as an unsecured claim and stripped from the property on completion of the payment plan when the debt is discharged.

Read case text

 

Related topics:
chapter 13 bankruptcy, chapter 7 bankruptcy, junior lien, negative equity, underwater

Posted by ft Editorial Staff | Nov 21, 2016 | Laws and Regulations, Property Management, Real Estate, Recent Case Decisions | 0

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

San Francisco Apartment Association v. City and County of San Francisco

Facts: The Ellis Act (the Act) permits residential landlords in California to evict non-faulting tenants when the landlord intends to remove their rental units from the rental market. A county, in response to a regional housing shortage, enacts a local ordinance requiring residential landlords who evict tenants under the Act to wait 10 years after withdrawing their units from the rental market before the landlord may apply for approval from the county to merge multiple units. Local landlords intending to remove their units from the rental market and merge them apply for approval soon after evicting their tenants, and are denied due to the local ordinance.

Claim: An apartment association seeks to invalidate the county’s ordinance, claiming it violates the Act since the ordinance penalizes landlords who exercise their rights under the Act and wrongfully seeks to compel them to continue renting their units.

Counter claim: The county claims the ordinance is valid since the California Constitution grants local government police power to enact land use regulations consistent with state law, which is not preempted by the Act.

Holding: A California court of appeals holds the county’s ordinance is invalid since it penalizes residential landlords for exercising their rights to withdraw rental units under the Act and adversely affects the class of people the Act is meant to protect — an exercise of police power that exceeds the scope of local governance permitted by the Act. [San Francisco Apartment Association v. City and County of San Francisco (September 19, 2016)_CA4th_]

 

Related article:

California Ellis Act evictions cause controversy

 

 

 

Related topics:
eviction, landlords, tenants

Posted by Carrie B. Reyes | Jun 20, 2016 | Buyers and Sellers, Fair Housing, Feature Articles, Fundamentals | 7

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

This article details the hurdles minority households face in becoming homeowners, and offers actions California real estate agents may take to mitigate these obstacles to homeownership.

Wealth and access to homeownership

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

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

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

The average household wealth of White households is $114,785 as of 2011, according to an analysis of wealth, homeownership and race by Zillow. This is more than four times greater than the average Black household’s wealth of just $24,792.

Much of this wealth gap can be explained by lower homeownership rates among Black and other minority households.

Why minority households steer clear of homeownership

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

If past experience has taught minority communities anything, it’s that for minorities, homeownership is not the “safe investment” many claim it to be.

The National Bureau of Economic Research recently published a study on the impact of the 2008 Great Recession on the homeownership rates of Black and Hispanic households compared to White households (Asian-American households were excluded from the study). It found the 2009 foreclosure crisis had a greater effect on minority homebuyer communities compared to White communities. For instance:

• in 2004, when Black homeownership was at its highest, 49.7% of Black households were homeowners — in 2010, this percentage had shrunk to 45.6%; and
• in 2007, when Hispanic homeownership was at its highest, 50.1% of Hispanic households were homeowners — in 2010, this percentage had fallen to 47.5%.

Put another way, over 1-in-10 Black and Hispanic homeowner households lost their homes to foreclosure during this time. In contrast, just 1-in-25 White homeowner households were foreclosed upon.

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

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

Millennium Boom, the perfect storm for minority homebuyers

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

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

Countrywide discriminated against minority homebuyers in two ways, by:

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

Higher upfront fees and subprime mortgages led to the minorities targeted by Countrywide paying much more for mortgages than similarly qualified White homebuyers. Therefore, when the housing market and the economy went bust following the Millennium Boom, it was more difficult for minority homebuyers to make mortgage payments than the White homeowners who worked with Countrywide.

Part of this steering included lenders who encouraged minority homebuyers to take on more debt than they would be able to carry. It’s common knowledge that the higher a homebuyer’s DTI, the less likely they are going to be able to make future mortgage payments. Lenders of the Millennium Boom era did not seem to care about this axiom, and knowingly pushed minority homebuyers into mortgages they were unable to pay. This resulted in higher immediate fees for lenders, who jettisoned the risk to other investors by selling the bad mortgages on the secondary mortgage market — out of sight, out of mind.

The third reason minority homeowners were more likely to lose their home following the Great Recession is due to the statistical fact that the heads of Black and Hispanic households are more likely to be employed in professions more adversely affected by economic downturns, like manufacturing and other hourly jobs. In other words, they are more likely to lose their jobs than White heads of households.

Job loss and the inability to pay are the biggest reasons homeowners default on their mortgages, according to the Federal Reserve Bank of Boston. Other financial shocks also contribute to the decision to default, which is typically a struggling household’s last resort.

The problem for California real estate

California is a large, diverse state. Nearly 40% of the population identifies as Hispanic or Latino, according to the U.S. Census. Over 14% identify as Asian and nearly 7% identify as Black or African American. Therefore, discrimination in the mortgage and housing markets has a far-reaching influence on our state.

Another issue for minority homebuyers, not mentioned in the National Bureau of Economic Research report, is the discriminatory behavior of some real estate agents.

Compared to similarly qualified White clients, the U.S. Department of Housing and Urban Development (HUD) finds real estate agents nationwide show:

• 18% fewer for-sale listings and 4% fewer rental listings to Black households;
• 19% fewer for-sale listings and 7% fewer rental listings to Asian households; and
• roughly the same amount of for-sale listings and 7% fewer rental listings to Hispanic households.

Why do real estate agents tend to show minority homebuyers fewer listings than their White counterparts? It’s usually implicit bias on behalf of the real estate agent. For instance, some real estate agents may think they’re doing their Black clients a favor by only showing them homes in “Black neighborhoods” (an unlawful practice). Or agents may not realize they’re slower to respond to requests by minority homebuyers.

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

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

In cases of discrimination, most homebuyers, sellers and renters do not know how to take appropriate action by contacting CalBRE. Therefore, it is up to fellow agents and brokers to report discriminatory practices at CalBRE’s website. [See the “Fair Housing” section in Agency, Fair Housing, Trust Funds, Ethics and Risk Management, available through the first tuesday Realtipedia]

Related topics:
demographics, homeownership

Posted by ft Editorial Staff | Jun 27, 2016 | Laws and Regulations, New Laws, Property Management, Real Estate | 0

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

California Civil Code §1941.7
California Health and Safety Code §17920, 17920.3
Added and Amended by S.B. 655
Effective: January 1, 2016

A health or code enforcement officer may now designate a building as substandard and uninhabitable for visible and substantial mold growth.

Landlords are not required to abate a mold infestation until they have notice of:

• the infestation’s existence; or
• the tenant’s violation of their obligation to keep the rented premises clean and sanitary.

Landlords are required to provide reasonable notice in writing to tenants of their intent to enter the premises to abate mold. [See RPI Form 567]

Related topics:
landlords

Posted by Amy Thomas | May 9, 2016 | Buyers and Sellers, Feature Articles | 1

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

Distinguish between recourse and nonrecourse mortgage debt to determine the remedies available to homeowners and lenders in the event a homeowner defaults.

A homeowner defaults

A buyer takes out a mortgage to fund the purchase of a home for their principal residence. Several years later, an economic downturn causes the home’s fair market value (FMV) to drop and the homeowner to default on the mortgage.

Eventually, the mortgage holder holds a trustee’s foreclosure sale of the property to recover the unpaid mortgage debt. However, the home’s FMV at the time of the foreclosure sale is insufficient to cover the total mortgage debt owed by the homeowner.

Is the mortgage holder able to pursue collection from the homeowner for recovery of the remaining unpaid mortgage debt following the foreclosure sale?

No! The mortgage holder is not able to recover the remaining debt – the loss – from the foreclosed homeowner. The homeowner’s mortgage was purchase-assist financing which funded the purchase price on a one-to-four unit property they occupied. Thus, the mortgage is nonrecourse debt and the lender must settle for what they received at the foreclosure sale, the product of California’s anti-deficiency law. [Calif. Code of Civil Procedure §580b]

California anti-deficiency law

A mortgage holder’s right to pursue a property owner for mortgage debt unsatisfied by a foreclosure sale of the home depends on whether the mortgage is recourse or nonrecourse debt under California anti-deficiency law and what type of foreclosure sale was held – a trustee’s foreclosure sale or judicial foreclosure sale.

However, anti-deficiency law prevents mortgage lenders holding nonrecourse debt from suing homeowners and collecting the balance remaining unpaid on their mortgage after either a trustee’s or judicial foreclosure sale by barring a money judgment.

Nonrecourse debt is classified as purchase-money debt, including:

• purchase-assist financing on one-to-four unit residential property which the buyer occupies; and
• carryback debt (seller financing) when secured solely by the property sold. [CCP §580b]

California anti-deficiency laws shield homeowners with nonrecourse debt from liability after either a judicial or nonjudicial foreclosure (also called a trustee’s sale).

Exceptions to nonrecourse debt

Despite California anti-deficiency law and due to federal preemption, nonrecourse mortgages insured by the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA) are subject to government recovery of these unpaid mortgage debts.  Thus, government-insured mortgage debts are not controlled by state nonrecourse debt protections. However, the FHA and VA rarely exercise this right to recover.

Additionally, when on a foreclosure a mortgage holder loses money caused by a lowering of the property’s value due to the homeowner’s bad-faith neglect, called waste, they may collect the waste-related loss from the homeowner. Waste needs to be malicious or excessively damaging to the property to be considered in bad faith, as opposed to natural deterioration of the property’s value over time. The lender holding nonrecourse mortgage debt may only recover the devaluation to the property brought on by bad-faith waste, and then only when the lender underbids to take a loss on the foreclosure sale. [Cornelison v. Kornbluth (1975) 15 CA3d 590]

Recourse: when a mortgage holder can recover their loss

Now, consider a borrower who obtains a mortgage to fund the purchase price paid to acquire a business or investment property, secured by any type of real estate. When the owner defaults, the mortgage holder serves the proper notices and initiates a judicial foreclosure action to sell the encumbered property. Here, the mortgage debt is classified as recourse debt — the mortgage holder can obtain a money judgment for the difference between the total mortgage debt and the FMV of the property on the date of the judicial foreclosure sale, called a deficiency judgment. [CCP §580a]

Recourse debt is any mortgage debt not classified as nonrecourse, such as business- or investment-purpose mortgages.

Further, mortgage holders may only recover losses on recourse debt through judicial foreclosure, and only when:

• the property’s FMV at the time of the judicial sale is less than the outstanding debt, as determined by a court appraisal; and
• the mortgage holder underbids – makes less than a full credit bid – at the judicial foreclosure sale. [CCP §580a]

Second mortgages and refinances

California anti-deficiency law does not specify whether purchase-assist mortgages for second homes receive nonrecourse debt protections. However, nonrecourse debts require acquisition of a one-to-four unit residential property with the intent of the buyer to occupy it — which applies to second homes as well. Nothing in the code explicitly states the residence has to be a primary residence or that an owner cannot purchase more than one residence to occupy.

Second mortgages are nonrecourse debt when they provide purchase-assist financing to fund the price paid to purchase a home the buyer will occupy. This includes home equity lines of credit (HELOCs) to the extent they are used for purchase, construction or remodels of the same one-to-four unit dwelling by which they are secured. [CCP §580b; Bank of America v. Graves (1996) 51 CA4th 607]

Refinances are also considered nonrecourse debts when they are used to pay off the owner’s existing purchase-money mortgage. This includes loan modifications. However, any advance of additional principal (as with a cash-out refinance) or fees involved in the refinance or modification, other than the amount of the remaining original mortgage debt, are recourse debt. [CCP §580b]

Additional legal protections against deficiency judgments

A homeowner can escape from their negative equity home and their mortgage holder’s ability to collect other than through foreclosure by entering into a short sale approved by the lender for the satisfaction of a nonrecourse or recourse mortgage.

A short sale occurs when a mortgage holder agrees to accept the net proceeds from the sale of the secured property as consideration for reconveyance of the trust deed. The short sale agreement allows the owner to close the sale of their home when the net sales proceeds are less than the total debt owed. The mortgage holder’s acceptance of the discounted payoff, called a short pay, prohibits them from coming after the homeowner for the remaining unpaid debt, regardless of whether the debt is recourse or nonrecourse. [CCP §580e]

The catch with the short sale when a recourse mortgage is involved is getting the mortgage holder to agree; the homeowner cannot close a short sale and satisfy their debt unless their mortgage holder fully cooperates.

Tax-wise, homeowners with forgiven nonrecourse mortgage debt in California are shielded from the forgiven debt being taxed as income. Also, the federal Mortgage Forgiveness Debt Relief Act (MFDRA), which is up for extension again, prevents taxation of all mortgage debt forgiveness on qualified principal residences granted through 2014. If extended, the MFDRA will prevent taxation on mortgage debts forgiven before January 1, 2017. The MFDRA’s protection is critical only for California homeowners with recourse debts.

Stay up-to-date with California mortgage law by visiting first tuesday’s Legislative Gossip page, updated monthly with new and pending legislation. Check out SB 907 and AB 2234, currently pending, for updates on discharge of indebtedness on forgiven recourse debts.

Related topics:
judicial foreclosure, nonjudicial foreclosure, recourse debt, short sale, trustees sale

Posted by Amy Thomas | Apr 27, 2016 | Feature Articles, Fundamentals, Laws and Regulations | 1

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

Updated November 8, 2016 — A broker-associate’s employing broker will be public record beginning January 1, 2018. To view first tuesday’s analysis of this new law, see California Bureau of Real Estate (CalBRE) broker-associate employment to be public record.

Broker-associates enjoy the liberties of a broker license without the full responsibility of their own practice. How are they to be held accountable?

Broker-associates: Faux independents

Licensed real estate brokers have two options: work for themselves, or work for another broker. Each choice has its perks. However, when a broker chooses to work under another broker as a broker-associate, opportunities abound for the broker-associate to misbehave — and their supervising broker to shirk responsibility.

The California Bureau of Real Estate (CalBRE) currently does not publish the employing broker information for broker-associates on their online license lookup. A new bill introduced in February 2016 aims to increase public accountability for broker-associates, calling for the broker-associate’s relationship to their employing broker to be listed on their public license lookup.

Legal loopholes for broker-associates

Broker-associates are considered legally equal to sales agents when they work under another broker’s employment, meaning they are subject to the same limitations. For example, broker-associates are still considered “agents of the agent” acting on behalf of their employing broker. Both broker-associates and sales agents are considered associate licensees to the employing broker. [Calif. Civil Code §2079.13]

Further, the broker-associate’s employment agreement with their employing broker most often indicates the broker-associate (agent) agrees to provide real estate services to clients only on behalf of the employing broker. Thus, the scope of the broker-associate’s employment is limited in the same manner as that of a sales agent. [See RPI Form 505 and 506]

Editor’s note — Despite the obvious practicality of requiring a broker-associate to work only for a single broker, some employing brokers may not require broker-associates to agree to exclusive employment. This obligation or lack thereof is spelled out in the employment agreement provided by the employing broker.

Despite this equal standing as associate licensees, broker-associates are currently not held to the same accountability requirements regarding public information. For example, sales agents are required to notify the CalBRE immediately when they change employing brokers — but broker-associates are not. [Calif. Business and Professions Code §10161.8]

Contrarily, broker-associates are actively discouraged from naming their employing brokers on CalBRE forms, including the Broker Change Application, which all licensed brokers are required to use to update their personal information. The form instructions state:

When using the proper broker forms no reference should be made to the name (or fictitious name) of the broker for whom the broker-salesperson works. That type of information is irrelevant as there is no reference in the CalBRE records that such a working relationship exists.” [See RE 204]

If the CalBRE retains no record of a broker-associate’s employer, how is a client supposed to know who is responsible when a broker-associate mistreats them?

Existing accountability for broker-associates

Broker-associates are held accountable in everyday transactions when they follow protocol and list their employing broker on transaction forms. Exclusive employment agreements require the broker-associate — legally acting as an associate licensee, and thus an agent, of the broker — to name themselves as the agent of the transaction, and their employing broker as the broker of the transaction. [See RPI Form 102 and 103]

Additionally, agents are required to disclose their agency relationship as the buyer’s agent, seller’s agent or a dual agent in the purchase agreement. The purchase agreement also includes the employing broker’s information. [CC §2079.17; See RPI Form 150]

Thus, a client will have the employing broker’s information documented in the client’s employment agreement, or listing, with the broker-associate — if the broker-associate plays by the rules. However, some broker-associates may circumvent accountability by listing themselves as the broker of the transaction; since they have a broker’s license, the client is none the wiser and the employing broker exposed to risk gets none of the transaction fee.

Statutory guidance for broker-associate employment

In fact, there are several regulatory loopholes for broker-associates, mostly provided simply through vague regulatory language. For example, legal codes refer to broker-associates as associate licensees, but the CalBRE intentionally refers to them only as brokers. This language gap leaves room for inconsistent interpretations, resulting in abuse of broker-associate privileges and fee divisions — and many unanswered questions.

For example, since the CalBRE recognizes broker-associates as brokers, is a broker-associate able to work for multiple brokers?

The new bill seems to suggest they can. The bill states the licensee information made public by the CalBRE will, “if the associate licensee is a broker, identify each responsible broker with whom the licensee is contractually associated […].”

However, as mentioned above, standard employment agreements usually indicate the broker-associate is not to provide real estate services on behalf of anyone but the employing broker. When employment agreements dictate the broker-associate’s rights, then broker-associates may not work for multiple brokers, regardless of their broker’s license. [See RPI Form 505 and 506]

CalBRE responds to AB 2330

Dan Kehew, an attorney with the CalBRE, responded to first tuesday’s inquiries about the bill and appropriate broker-associate conduct. Officially, the CalBRE has not taken a stance in favor of or against the new bill.

Kehew stated the results of the bill, if it passes, are unclear. For now, the CalBRE can only anticipate requesting the voluntary disclosure of employment information from broker-associates in order to post it on the public license lookup.

Also, specific instances of broker-associate misbehavior injurious to the public and citing a need for the bill were not discovered. The CalBRE’s Enforcement branch indicated to Kehew discrepancies with advertising materials are the primary disciplinary scenarios at issue relevant to the bill.

The only definitive clarification provided is this: “There is no standard limiting contractual relationships.” Thus, neither California real estate law nor the CalBRE has limited broker-associates’ ability to work for multiple employing brokers. Instead, the employing broker’s contract with the broker-associate is the only determinant of a broker-associate’s employment limitations.

However, broker-associates with MLO endorsements need to ensure their employing brokers also have MLO endorsements.

Maintaining professionalism in real estate services

Until the bill is passed, it is up to employing brokers to maintain professional accountability for the broker-associates in their employment. Employing brokers are mandated to consistently supervise all agents in their practice to ensure they are upholding correct business practices — and that includes broker-associates. [Bus & P C §10177(h)]

As for broker-associates, knowledge of the limitations and requirements of their employment status is critical. Licensed brokers considering employment in another broker’s practice, or sales agents considering obtaining a broker license, need to understand the different responsibilities brokers incur when choosing to use their broker license as:

• a sole proprietor;
• a corporation; or
• a broker-associate.

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

Posted by Carrie B. Reyes | Jan 5, 2016 | Buyers and Sellers, Finance | 2

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

The Consumer Financial Protection Bureau (CFPB) requires use of new estimates and disclosures for consumer mortgage loans applied for on or after October 3, 2015.

Prior to the new disclosure requirements, detractors were concerned new closing rules included with the forms were going to lengthen the closing process, extending the length of time to buy a home. Now, with November 2015’s mortgage data available, it appears the time to close has in fact increased. Were the critics right?

Three-day delay lengthens closing — rarely

Know Before You Owe tasked the CFPB with replacing the lengthy, confusing disclosures with new consumer-friendly forms. Now, two disclosure forms are required instead of the previous four:

1. The Loan Estimate replaces the Good Faith Estimate (GFE) and the initial Truth-in-Lending Statement [See RPI Form 204-5 and 221]; and
2. The Closing Disclosure replaces the Settlement Statement (HUD-1) and the final Truth-in-Lending Statement. [See RPI Form 402]

One doesn’t expect fewer and simpler forms to result in a longer closing process. However, along with these form changes, the transactions are required to be placed on hold for three days following a significant change made to the closing disclosure. Critics believe the closing process will be put on hold each time a comma is moved or a name misspelled.

In truth, the three-day hold is only required if one of three significant changes are made to the closing disclosure:

• the annual percentage rate (APR) on a fixed rate mortgage (FRM) increases by more than 1/8 of a percent, or 1/4 of a percent for adjustable rate mortgages (ARMs);
• a prepayment penalty is added when it previously wasn’t part of the mortgage, which would make it costly for the owner to refinance or sell in the future; or
• the mortgage product changes, for example from an FRM to an ARM, according to the CFPB.

Closing is only delayed in these three relatively rare circumstances. Therefore, first tuesday forecasted no noticeable closing delays would occur following the roll-out of Know Before You Owe.

Why the delay?

However, the average time to close increased to 49 days in November 2015, up from an average 46 days in the previous month, according to Ellie Mae. That’s an additional three days to close — exactly what the critics feared. Further, the number of homes sold in November were well below the previous month, even considering the seasonal sales volume decrease which tends to occur in the fall.

PropertyRadar attributes the slowdown to the new disclosure requirements, and they’re likely right. But it’s not due to the three-day rule. More likely, lenders just used the extra time to become familiar with the new disclosures, and it took an average of three additional days per closing to work out the changes.

Unless ARM use or APR rates jumped in November (which they didn’t) or prepayment penalties are making a comeback, the three-day hold period isn’t to blame. Therefore, the closing delays are unlikely to continue in the months to come as lenders adjust to the new forms.

All things considered, the new disclosures are beneficial to buyer-occupants, who are less savvy about industry-specific terms. The new forms translate the mortgage for laypeople, helping them understand the payment terms and procedures. Further, the three-day waiting period, while rarely obligatory, will be extremely helpful for those situations in which it is required, when the mortgage payment changes significantly from what the homebuyer was initially led to anticipate. Therefore, when closing is delayed due to the three-day rule, it will be in the homebuyer’s or homeowner’s best interest.

Agents and brokers: What has been your experience in the months following the new disclosure requirements? Have you experienced delays, and how have clients responded to the new disclosures? Share your experience in the comments!

Related topics:
closing disclosures, consumer financial protection bureau (cfpb)

Posted by ft Editorial Staff | Jun 27, 2016 | Investment, Laws and Regulations, New Laws, Real Estate | 0

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

A prior version of this post stated the investor questionnaire is required in the sale of “investment property.” This has been revised to state the questionnaire is only required in the sale of “notes secured by real estate or a business opportunity.” Changes are indicated in red.

California Business and Professions Code §10232.3, 10232.45
California Corporations Code §25102.2
Amended by S.B. 647
Effective: January 1, 2016

A broker who offers to sell or sells notes secured by a lien on real estate or a business opportunity is limited by maximum allowable loan-to-value ratios (LTV).

A maximum LTV of 60% now applies to notes secured by property that produces income from crops, minerals or timber.

Additionally, brokers who sell notes secured by real estate or a business opportunity need to have their prospective buyers complete an investor questionnaire approved by the Commissioner of the Department of Business Oversight (DBO).

The questionnaire now needs to be obtained from the buyer at least two business days and not more than one year prior to the sale of the notes.

Editor’s note — The investor questionnaire allows brokers to determine a client’s capacity for purchasing notes secured by real estate or a business opportunity, as required by the DBO. [See RPI Form 350 Client Profile Confidential Personal Data Sheet]

A broker needs only to ensure material facts are updated on the questionnaire with each new offer to the same buyer.
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Related topics:
department of business oversight (dbo), loan-to-value ratio (ltv), real estate investment, real estate investor

Posted by Giang Hoang-Burdette | Dec 5, 2016 | New Laws, Property Management, Real Estate | 0

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

Calif. Code of Civil Procedure §§1161.2, 1167.1
Amended and added by A.B.2819
Effective date: January 1, 2017

In an unlawful detainer (UD) action, the UD filing and case records are:

• public record if a residential landlord, after a trial, prevails on the UD action against all tenants party to the action within 60 days of the UD filing;
• public record if a non-residential landlord, after a trial, prevails on the UD action within 60 days of the UD filing;
• available by court order if the landlord prevails, after a trial, more than 60 days after the UD filing; and
• not public record if the tenant prevails or has the default judgment set aside.

A landlord now has 60 days from the UD action filing to file proof of service of a summons to a tenant in response to the UD action. A court may dismiss a UD action if the landlord fails to timely file the proof of service of summons to the tenant.

Editor’s note — Currently, state law bars the release of information about a UD filing for a period of 60 days following the initial filing, called the masking window. When the law establishing the masking window went into effect, lawmakers believed the 60-day period was a reasonable timeframe for resolving a UD action. If the tenant prevailed during the 60-day period, the UD action never made it into public record, and thus the UD did not appear on the tenant’s rental history during tenant screening.

However, if resolution of the UD action drags beyond 60 days, regardless of the outcome, the UD filing is released as part of the tenant’s rental history, available to tenant screening services. Tenants’ rights groups believe this unfairly stigmatizes tenants who have UD actions filed against them, but who were never lawfully evicted.

This law attempts to strike a balance between landlords’ rights to assess the risk of a tenant’s default on a rental or lease agreement, and the tenants’ rights to protect their rental history against unsuccessful or spurious eviction attempts.

Read more:

Read the bill text.

Related topics:
landlord, tenant, unlawful detainer (ud)

Posted by Carrie B. Reyes | Nov 8, 2016 | Loan Products, New Laws, Real Estate | 0

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

Condo projects need to meet minimum owner-occupancy rates before the purchase of an individual unit may be financed with a Federal Housing Administration (FHA)-insured mortgage. As of October 26, 2016, the minimum owner-occupancy rate for condo projects at least 12 months old and meeting certain conditions will be lowered from 50% to 35%. Condo projects still in the construction phase will continue to require a 30% owner-occupancy rate.

The Department of Housing and Urban Development (HUD) acknowledges that FHA-insured mortgages of condo units have a lower default rate than FHA-insured mortgages on SFRs. HUD attributes this success to their strict owner-occupancy requirement, which is why — while lowering the owner-occupancy minimum — HUD is requiring additional default and reserve requirements to show the condo project is stable.

The additional conditions for existing condo projects to qualify for FHA approval with the low 35% owner-occupancy rate are:

• the project needs to submit an application for review under the HUD Review and Approval Process (HRAP) option, usually via the builder, developer, homeowners’ association (HOA), management company, project consultant or an attorney representing one of these entities; [HUD Condominium Project Approval and Processing Guide §1.3]
• the project needs to show funding of replacement reserves for capital expenditures and deferred maintenance in an account which represents 20% or more of the budget;
• no more than 10% of the total units can be more than 60 days delinquent on their HOA dues; and
• the project needs to provide three years of financial documents. [See HUD Mortgagee Letter 2016-15]

Condo projects with an owner-occupancy rate of 50% or higher do not need to take these additional steps. Condo projects need to be re-certified every two years to remain eligible for new FHA-insured financing.

Similar, temporary guidelines were put in place in 2012 and modified in 2015, but this new rule is permanent. The other temporary guidelines, which include a simplified process for the recertification of condominium projects and master insurance provision changes, will expire August 31, 2017 unless action is taken to extend them before this time. [See HUD Mortgage Letter 2016-13]

The new rules supersede the temporary rule extended by Mortgagee Letter 2016-13 which allowed any non-investor-owned unit to count toward the minimum owner-occupancy percentage. Now, only those using or intending to use their unit as a primary or secondary residence (not including vacation homes) are considered owner-occupants.

HUD’s permanent change to the owner-occupancy minimum requirement was ordered by the Housing Opportunity Through Modernization Act of 2016. [See H.R. 3700]

 

Looser condo guidelines good for growth

In California, condos are the home purchase of choice for homebuyers as varied as first-time homebuyers to retirees.

Condos are less expensive to purchase and their smaller space means they are ideal for homebuyers without children living at home. Further, a buyer choosing between a condo and a single family residence (SFR) will find that for the same amount of money, they will find a condo in a more central, desirable location than any similarly priced SFR. Perhaps most significant, condos tend to appreciate in value more quickly than SFRs — though they also tend to fall more quickly in a declining market.

However, in California’s pricey housing market, condo ownership can be difficult to attain for many first-time homebuyers, who often rely on low down payment FHA-insured mortgages.

This change will potentially ease the burden somewhat for low down payment buyers. But only if eligible condo HOAs seek FHA approval. Buyers have no control over this process, but sellers interested in reaching the largest pool of buyers can approach their HOA board to encourage their condo project to apply. Once the complete application and materials are submitted, it typically takes about 30 days to receive a decision from HUD.

To see if your client’s condo is currently eligible for FHA-insured mortgages, visit HUD’s condo search tool.

Related topics:
condominium, federal housing administration (fha), homeowners’ association (hoa)

Posted by ft Editorial Staff | Jul 25, 2016 | Laws and Regulations, Reader Polls, Real Estate, Your Practice | 1

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

This poll will close on August 8, 2016.

To read the CalBRE’s Code of Ethics and Professional Conduct, see the CalBRE Real Estate Bulletin, Summer 1979.

Related articles:

Real(i)ty check: resurrect the DRE Code of Ethics

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

Posted by Amy Thomas | Jun 13, 2016 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Civil Code §§1098, 1098.5 and 1102.6e
Amended by A.B. 807
Effective date: January 1, 2016

Existing law is clarified to define private transfer fees as any fees imposed by a real estate instrument as a result of the transfer of real estate, regardless of when payment of the fees is demanded.

The previous version of this definition stated private transfer fees were imposed upon the transfer of real estate, unintentionally implying that fees which were not paid immediately at the time of the transfer did not statutorily qualify as private transfer fees and did not need to be disclosed as such. Thus, homeowners were charged undisclosed private transfer fees through disguised methods, such as prorated monthly payments.

Private transfer fees include:

• transfer taxes;
• recording fees;
• homeowners association (HOA) fees; and
• escrow fees.

The amount and method of calculating the private transfer fee — when the fee is not a flat amount or set percentage of the sale price — needs to be recounted on a separate document rather than incorporated through reference to related documents.

Examples of dollar amounts for residential property are required when the fee amount is based on the property’s sale price.

Transfer fees recorded against a property prior to December 31, 2007 are no longer applicable under the clarified definition. However, such fees can be re-recorded in compliance with the clarified law prior to December 31, 2016.

Read the bill text.

Related topics:

Posted by Amy Thomas | Aug 29, 2016 | New Laws, Real Estate, Your Practice | 0

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

Real estate marketing has become a fierce competition among agents to see who has the best gadgets — and the Federal Aviation Administration (FAA) just elevated the playing field.

The FAA recently issued modified regulations for the commercial use of small unmanned aerial vehicles (UAV) or unmanned aircraft systems (UAS), commonly known as drones. In the context of real estate, drones are most often used for filming aerial footage of home listings, marketing footage, and other visual media to promote an agent’s business or properties listed for sale.

Prior to the new regulations, real estate agents and other entrepreneurs had to undergo a rigorous certification, registration and waiver process under an archaic set of regulations known as Section 333 before being allowed to use drones for simple real estate filming purposes. The adoption of drones was a prime example of technology moving faster than regulations needed to protect society.

Now, however, the regulations have finally caught up. The new regulations, known as Part 107, make drones more accessible to agents by simplifying permissions and guidelines for drone use.

In order to use drones, agents (or the certified drone aviation professionals they hire) need to:

• hold or be supervised by a holder of a remote pilot airman certificate with a small UAS rating;
• pass a background check by the Transportation Security Administration (TSA); and
• be at least 16 years old (mostly irrelevant since agents need to be at least 18 years old as a requirement of licensure).

Agents qualify for a remote pilot airman certificate by either:

• passing an aeronautical knowledge test at a testing center approved by the FAA; or
• holding a Part 61 pilot certificate (other than student pilot), completing a flight review within 24 months prior to certification, and completing an online training course for small UAS flight.

The FAA estimates the cost of an aeronautical knowledge test with a small UAS rating will be approximately $150, although final costs have yet to be determined. Costs for a Part 61 pilot certificate vary depending on the type of certificate issued, although estimates range from $3,000 to $9,000. Part 61 certifications surpass the necessary parameters for operating drones; this requirement typically applies to those already certified under Part 61.

Drone qualifications and use

Agents who qualify for operating drones under Part 107 also need to ensure the drones they use meet certain requirements.

To qualify for commercial use, drones need to be:

• no greater than 55 pounds, including any attached equipment (such as cameras);
• inspected prior to flight by the agent; and
• constantly in the agent’s unaided visual line of sight (VLOS).

Additionally, drones may NOT fly:

• over any person who is not involved with its use;
• under a covered structure;
• inside a stationary vehicle or outside a moving vehicle;
• more than 100 miles per hour;
• more than 400 feet above ground; or
• outside Class G airspace, which consists of unregulated airspace not used by other aerial vehicles (unless specially permitted).

Editor’s note — For a thorough understanding of various airspace designations, view this guide.

Drones may only be used during daylight hours, defined as 30 minutes before official sunrise to 30 minutes after official sunset, according to the agent’s local time.

How agents can use drones for real estate

Tech-savvy agents ought to consider drones as a way to distinguish their real estate marketing. Drones are increasingly common in professional enterprises, especially since smaller drones — like the ones agents can use under Part 107 regulations — are cheaper and more accessible than ever before.

Although most agents have yet to use drones in their real estate business, drones’ popularity is rising. Initially, agents are most likely to hire certified professionals intimately familiar with all the regulations to fly drones for them versus going through the certification process themselves.

Drones improve existing visual marketing media by allowing more expansive and unique video content for video listings and home tours. Aerial views of a home can help a browsing buyer vividly picture the character of the neighborhood, the overall size of the house and the unique amenities it may have, like a sprawling backyard, ornate patio or water features.

Additionally, drones are far cheaper than alternative digital media technologies. For do-it-yourself agents, drones of reasonable size for commercial use range from $70 and up, depending on the particular features and additional tech included with each model. Agents looking to get started can check out UAV Coach’s list of 17 Cheap Drones for Beginners (Under $150) or RC Hobbies on Air’s list of 60+ Cheap Drones for Beginners.

In comparison, virtual reality technology can cost up to a few thousand dollars — plus the added cost of a digital rendition by a virtual reality designer to create and edit videos. Virtual reality is currently more popular for incomplete construction projects which rely on buyers’ imagination to fuel pre-sales. Alternatively, drones are more appropriate in the context of exhibiting existing structures.

Drones help agents keep up with visual technology in an industry that heavily relies on sensory experience. Just as location, location, location was the mantra of old, look, look, look may become the latest real estate fundamental to be pioneered by the new generation of agents. Buyers who like what they see in an online listing with a video are more likely to visit an open house or make contact with the agent — a critical advantage for agents to possess as the industry transitions to largely digital correspondence.

Agents, how do you use or foresee using drones in your real estate marketing? Let us know what you think in the comments below!

 

Related topics:
real estate marketing

Posted by Carrie B. Reyes | May 16, 2016 | Buyers and Sellers, Feature Articles | 0

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

This article outlines the various restrictions placed on absentee owners in California.

California’s absentee owner problem

Three years on from 2013 — “the year of the speculator” — California homeowners are learning to live with the presence of speculators turned long-term absentee homeowners. New laws and regulations apply.

A speculator is an individual who plans to own a property short-term, sandwiching themselves between the seller and the end user in order to make a profit. Speculators are plentiful in markets characterized by rapidly rising prices, as they sell within a few months of initially buying, making their profit based on market momentum alone.

Speculators are distinct from long-term investors by duration of investment. Long-term investors rely on rental income for a stream of revenue. Rental income is not usually part of the speculator’s long-term plan.

However, when the market slows, as prices have done in 2015-2016, speculators are sometimes forced to rent their properties to recoup their investment. Then, new issues come up.

A preference for owner-occupants

Compared to owner-occupied homes, property tended by absentee owners is more often neglected. Pride of ownership has a visibly positive impact on the property, as homeowners like to take care of their property. But when the owner is not present, the property can fall into disrepair or worse, proving troublesome to the neighbors and local property values. Thus, rules exist at the state and federal level to discourage both long- and short-term absentee owners.

In California, homeowners’ associations (HOAs) may establish additional rules and fees for absentee owners, even if they weren’t in place in their covenants, conditions and restrictions (CC&Rs) when the absentee owner first purchased the property. [Watts v. Oak Shores Community Association 235 CA4th 466]

At the national level, the Federal Housing Administration (FHA) restricts purchases of homes owned by speculators. This so-called anti-flipping rule requires a speculator wait at least 90 days after acquiring the property before it becomes eligible for purchase with an FHA-insured mortgage. [HUD Handbook 4000.1 Chapter 2.A.1.iv]

The anti-flipping rule was placed on hold following the Great Recession, the waiver ending January 1, 2015. The reasoning for the temporary waiver was twofold:

• to encourage first-time homebuyers, who are often reliant on FHA-insured mortgages; and
• to allow speculators to work their recovery magic by breathing life into the market.

Speculators usually have the cash available to rid distressed sales from the housing market’s bloated inventory. This activity helps home prices to stabilize and rise at a time when lenders are cautious and owner-occupant homebuyers wait on the sidelines.

But speculators without cash on hand need to rely on financing, which is more expensive for investors than owner-occupant homebuyers. Lenders know it’s more risky to lend to an absentee owner, since in times of recession or financial hardship the speculator is more likely to default, walking away from the investment.

Absentee owners who lie on a mortgage application, claiming they will occupy the home, are committing occupancy misrepresentation. [See RPI Form 202-3]

California has one of the highest risk levels for mortgage application fraud, occupancy misrepresentation chief among the types of fraud applicants commit, according to the Interthinx Mortgage Fraud Risk Report. The fraudster’s goal is to:

• receive a lower mortgage interest rate; and
• qualify for lower down payment requirements.

But when the non-owner-occupant is caught, the lender may call the full mortgage amount due immediately. They are also placed in the Suspicious Activity Reports (SARs), a national database that essentially prevents them from qualifying for a mortgage or refinancing in the future.

California’s love-hate relationship with speculators

Speculators and long-term investors each have their roles to play in the housing market. During a housing recovery, such as occurred following the 2008 Great Recession, the role of speculators is especially significant.

While some speculators are helpful, too many becomes a problem for everyone else, including buyer-occupants who are pushed out of the market and the future neighbors of all these absentee owners.

Speculators went overboard at the tail end of the most recent recovery. In 2012-2014, speculators completed one-in-three home purchases. When including grant deed and trustee’s deed sales, this number swells to one-in-two home purchases completed by speculators. In contrast, a healthy share is closer to one-in-seven home sales going to speculators.

In 2016, speculators are making a small comeback, though they remain well below their 2012-2014 presence. The metro areas in California with the highest share of speculators are places populated by low-tier properties, including Fresno and Los Angeles, according to CoreLogic.

However, expect speculators to descend back to healthy levels in 2017. Today’s tightening home sales volume and increasing home prices will keep speculators at bay. Further, once mortgage rates rise — anticipated around late 2016 or early 2017 — prices and sales volume will suffer, discouraging speculators.

The next boom on the horizon is likely towards the end of this decade, around 2019-2021. Built-up demand from first-time homebuyers anxious to get into the market and Baby Boomers who have delayed retirement following the Great Recession will converge, and speculators will undoubtedly seek to profit.

Related topics:
flipper, real estate speculators

Posted by Amy Thomas | May 9, 2016 | Bay Area, Laws and Regulations, Real Estate | 1

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

The California Building Industry Association (CBIA) was dealt a final blow by the U.S. Supreme Court in February 2016, ending their years-long battle against a new San Jose zoning ordinance. The ordinance dictates San Jose developers are required to reserve 15% of units in for-sale housing developments of 20 units or more for low- to moderate-income buyers.

The ordinance was originally intended to take effect January 1, 2013; however, the CBIA ravaged the ordinance via lawsuit almost immediately. After an injunction on the ordinance issued by the Santa Clara County Superior Court was overturned in the 6^th District Court of Appeal, the CBIA pushed the case through to the California Supreme Court. The Supreme Court ultimately declared the ordinance valid in June 2015. The CBIA ushered in one final effort at resistance, petitioning the U.S. Supreme Court, which declined to hear the case in late February 2016.

Now cleared from the injunction, the ordinance is poised to take effect. However, local developers in the San Jose area are less than pleased.

San Jose developers resist the ordinance

The San Jose City Council elected to give developers a grace period for acclimating to the new ordinance. Developers with projects approved before June 30 need to apply for an exemption to the new ordinance and submit a compliance plan, outlining their plans to adapt the existing project to the new requirements, to qualify.

Developers unhappy with the ordinance’s requirements may choose one of two alternatives to allocating 15% of their units:

• building low- and moderate-income units elsewhere; or
• paying a $122,000 in-lieu fee to the city.

Still, the ordinance may have unintended consequences.

Developers unable or unwilling to meet the city’s requirements may choose to abandon projects entirely rather than take a hit to their profits. Sellers of raw land who ordinarily receive hefty paydays for space ripe for development may also suffer losses as developers cinch purchase costs in order to fund construction under the ordinance’s limits. This may motivate sellers to sit on their land until higher prices can be caught, which itself runs contrary to the objectives of the ordinance.

However, the “hits” developers take are laughable to the rest of the U.S. “Moderate-income” residents – the top rung of buyers for the 15% of reserved units – in San Jose earn roughly $74,000 – $89,000 annually.

Resistance festers the massive inventory problem in California’s urban markets. As sellers and developers flee San Jose in search for more lucrative opportunities elsewhere, the lack of construction on new units will further undermine California’s consistently decreasing inventory. San Jose in particular is among the top national cities with the lowest inventory, clocking in at only 1,788 available homes in January 2016 — fewer even than the notoriously poorly-stocked San Francisco.

Benefits of urban inclusionary zoning

Despite discontented developers, the new ordinance has potential to bring benefits that flourish in areas with forward-looking and progressive zoning. Patience and the passage of time are required for everyone to mellow out after a nasty fight.

Higher urban density allowing residents to live closer to their workplaces phases out extensive commuting expenses incurred by those who can’t afford to live in the costly city. Further, increasing the amount of housing units available to residents of all income tiers restores equilibrium to excessive rental rates and home prices in the vicinity. Also, the proximity of residential accommodations to commercial and recreational facilities, known as mixed-use zoning, decreases crime rates and facilitates economic growth.

However, none of these benefits can take root unless developers cooperate with the new ordinance. Whether developers continue to challenge inclusive measures and abandon more expensive — but more equalized — housing projects remains to be seen.  Once the grace period is lifted and the ordinance finds its permanent footing in San Jose’s housing market, the future of San Jose’s caricature home sales market will be revealed.

Related topics:
california supreme court, developers, san jose

Posted by ft Editorial Staff | May 2, 2016 | Buyers and Sellers, Real Estate | 0

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

Sunrun CEO Lynn Jurich advocates for homeowners to sell excess solar energy back to the grid at retail rates.

Homeowner exchange of excess solar energy for credit from utility companies, called net metering, is a significant motivator for solar clients. However, some states — for example, Nevada — are already eliminating net metering benefits as solar operating costs for utility companies outrun their income.

Related articles:
Solar woes loom for homeowners as tax credits sizzle away
Tech Corner: Google’s Project Sunroof answers all your solar questions
All about solar leases

Related topics:
solar, solar energy,

Posted by Carrie B. Reyes | Mar 14, 2016 | Buyers and Sellers | 0

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

Has the solar slowdown just begun?

Investors fear the worst for the solar market, as stock values for solar leasing giant SolarCity plunged in the first months of 2016. SolarCity finished 2015 with a $648 million operating loss, according to the New York Times. While solar customer growth continues, operational costs far exceed revenue for the solar leasing company.

The biggest public-perception problem for the solar leasing company is Nevada’s recent cut to its net metering program. Nevada’s cuts not only reduce or eliminate net metering credits for new solar customers, but also for solar customers already under contract who strongly weighed net metering in their determination to go solar. This is a blow to SolarCity, and its Nevada customers. 20 other states are considering following Nevada’s example, clouding potential customers’ confidence in the financial viability of adopting solar technology.

Net metering is an agreement between the utility company and the residential or commercial customer. The property owner who generates excess solar energy can sell it back to the utility company for credit to be used later. Solar panels often produce more energy than the home needs during the sunny months. In the winter when cloud cover obscures more of the panels, owners’ net metering credits can be used to pay down their winter utility bills.

When net metering is not an option, property owners are less likely to be interested in buying or leasing a solar system, as this instinctual savings incentive is lost.

The good news for solar in California: net metering continues, and SolarCity is optimistic about potential for even more tax credit growth in the state.

Solar: a long-term investment

Going solar requires long-term planning. On average, it takes a homeowner 20 years to pay off the full cost of a solar system. Leasing solar panels eliminates the investment, but it still requires a similar, lengthy commitment.

What happens if the homeowner sells before the 20 years are up? There are three options:

1. The seller may transfer the solar lease to their new home if it is in the same territory, for a cost.
2. The seller may purchase the solar panels outright and include the cost in the home’s sale price, if they find a willing buyer.
3. The buyer may assume the solar lease.

Since the solar lease is a contract, interested homeowners may be concerned that signing a solar lease will place a lien on the property. However, the lien is on the solar fixture — not the property. Therefore, if the homeowner stops paying for solar service, the leasing company’s sole recourse is to reclaim the solar system, not foreclose on the property.

On the other hand, taking out a mortgage to pay for the purchase of a solar system does create an additional lien on the property.

Another reason long-term planning is necessary before signing a solar agreement is the possibility of roof maintenance. That is, if the homeowner’s roof needs repairing, they will need to pay to have the panels moved before work can begin on the roof. Therefore, installing panels on a roof that will need maintenance in a few years is not wise.

However, the long-term investment does pay off, though it can take several years. The energy savings can be significant, especially for Southern California homeowners who receive the most sun. The average solar lease savings after the cost of renting the solar panels is a 15% reduction on monthly utility costs. Purchasing solar panels may provide bigger savings, but they won’t be realized until the system is paid off.

Read more about the details of solar leases here.

Read about prepaid solar leases here.

For a critical list of issues homeowners are to consider before signing a solar lease, click here.

Related topics:
energy efficiency, public utilities, solar lease

Posted by Carrie B. Reyes | Sep 26, 2016 | Buyers and Sellers, Tax | 0

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

California solar activity accounts for over half of all solar activity in the nation. Over 113,000 new residential and commercial solar permits were issued in California during 2015, compared to 218,000 permits issued nationwide, according to BuildFax.

Further, nearly half of the top 20 quickest growing markets for solar are cities in California. In order of the fastest rate of increase in 2015, these cities are:

• Sacramento at 139%;
• Stockton at 118%;
• Chula Vista at 84%;
• Anaheim at 80%;
• San Diego at 73%;
• Fremont at 65%;
• Oakland at 55%; and
• Riverside at 50%.

While solar is taking off today, the future success of solar still depends largely on government incentives and the ongoing cooperation of local utilities. For example, in California, new residential and commercial buildings of ten or fewer stories need to be solar ready, with at least 15% of its roof area cleared for potential installation of solar panels. [24 Calif. Code of Regulations §110.10]

Beginning in 2017 in San Francisco, new residential and commercial buildings ten or fewer stories tall are required to have a solar system installed. (Of course, the effect on the state as a whole will be negligible, considering the minimal amount of new construction occurring within the city limits.)

Thus, California policy is taking active steps to aggressively encourage the adoption of solar technology. But it’s not all sunshine for the rest of the nation.

For an example of what can go wrong when state incentives disrupt solar, look no further than our fellow Sand State neighbor: Nevada.

Nevada used to have the most thriving solar market in the country (little wonder due to its nearly year round exposure to sun, like much of Southern California). But at the end of 2015, the utilities commission started charging higher rates for solar customers, increasing their bills by 50%. In reaction, solar installation has fallen by half in 2016 and thousands of workers in the solar industry have been laid off, according to BuildFax. If there ever was a foolproof way to murder budding technology, that is the way to do it.

So a storm is brewing over states like Nevada. What is the future of California solar?

California solar forecast: cloudy with a chance of state incentives

California’s largest installer of residential solar systems, SolarCity, is in financial straits in 2016. Following year after year of company losses, the solar leasing company is offering itself up for purchase. Innovative Tesla Motors, Inc. is positioned to be the buyer, but Tesla shareholders are not enthused and may put a stop to the sale when they vote in the coming weeks.

The problem is most of SolarCity’s future financial success is dependent on the continuation of government investment tax credits, which are currently set to reduce from 30% in 2019 to 10% in 2022, according to The Motley Fool. Of course, these may be extended as they have been in the past, but it all depends on who is in political office. And without the tax credit, SolarCity will have an even harder (read: impossible) time staying attractive to customers and viable.

If the worst occurs and the Tesla acquisition is not approved and SolarCity goes bankrupt, their many customers across California will be left hanging. If this happens, there’s no assurance about whether the installed solar systems will be reclaimed, be able to be purchased by the homeowner, or if they will be useable in the future. It’s a game of wait-and-see at this point, and a worrisome one for the largest installer of solar. This uncertainty casts a pall over those who are considering going solar in the near future.

On the other hand, there is a bright side to California solar, too.

While federal incentives are less than certain, our state’s incentives are widely available at the state, county and city level.

Find out what tax incentives are available in your neighborhood by entering your address in this solar calculator, or by scrolling to view your city from the list of solar incentives.

Further, California has a big economic stake in the success of the solar industry. 76,000 individuals are employed in the solar industry in California, and $7.3 billion was invested in solar projects here in 2015. It currently has enough solar systems installed to power 3.5 million homes, according to Solar Energy Industries Association. Cutting back incentives has the potential to be disastrous for this fledgling segment of the economy, and forward-looking lawmakers know this.

Finally, as the technology refines itself, the cost of solar panels continues to fall, making it more accessible to all property owners. For those who purchase solar systems outright (rather than leasing them, as with SolarCity), today’s lower costs also improve the return on investment, making solar more attractive.

If you or a client are considering going solar — or if they are considering buying a home with panels pre-installed (particularly a solar-included new build) — think carefully through the pros and cons. Solar can be a valuable investment, but at this point it may be wiser to choose an outright purchase and keep the tax benefits instead of signing onto a dubious solar lease, since the future of solar leasing companies is unclear.

For a form to help your clients think through the benefits and disadvantages, see: Solar panels: pros and cons.

Related topics:
solar, solar lease, tax aspects

Posted by Renee Sogueco | Aug 23, 2016 | Investment, Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Insurance Code §12640.09
Amended by A.B. 1645
Effective: January 1, 2018

Private mortgage insurers are permanently able to insure more than 30% of a first lien secured by a one-to-four unit property without obtaining reinsurance from another private mortgage insurer. The sunset date for this law has been repealed.

Editor’s Note – first tuesday covered the temporary removal of limitations in a prior Legislative Watch.
[dfads params=’groups=37813&limit=1&orderby=random’]

Related topics:
mortgage insurance, private, california real estate

Posted by Amy Thomas | May 17, 2016 | Buyers and Sellers, Finance, Real Estate | 2

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

Lenders both big and small dreaded the implementation of the new Loan Estimate and Closing Disclosure required by the Consumer Financial Protection Bureau (CFPB) at the end of 2015. However, lender dissatisfaction today is more about bruised egos than lost profits. [See RPI Form 204-5 and 402]

Effective October 3, 2015, consumer mortgage lenders regulated by the Consumer Finance Protection Bureau (CFPB) began providing homebuyers who applied for purchase-assist financing:

• a Loan Estimate of all mortgage terms quoted by the lender within three business days after the lender’s receipt of the buyer’s mortgage application [See RPI Form 204-5]; and
• a Closing Disclosure, a statement summarizing the “final” mortgage terms and details, at least three days before closing on the mortgage. [See RPI Form 402]

Editor’s note — Lenders are also required to provide a special information booklet published by the CFPB to help the buyer understand the nature and scope of real estate closing costs and a list of homeownership counseling organizations within three business days after the lender’s receipt of the buyer’s application. [See RPI Form 202]

Also, the new CFPB disclosures mandate an extra three-day waiting period when the lender makes a significant change in the mortgage terms documented in the Loan Estimate. Lenders perceive this additional waiting period as a needless delay in closings — and a threat to their productivity (and profits).

Now six months after the requirements took effect, STRATMORE, a mortgage lender advisory firm, decided to test the industry’s adjustment to the new rules with a survey of lenders and homebuyers.

Of the homebuyers surveyed, a whopping 91% expressed satisfaction with their experience using the new disclosures — shutting down the previous laments of reluctant lenders.

Further, lenders themselves are performing better than expected. The survey revealed:

• 87% of all lenders (banks and independent lenders) have fully integrated the new disclosures into their practice; and
• 72% of small and 80% of mid-size independent lenders reported successful integration.

However, independent lenders’ quick adaptation left the big banks in their dust. Only 33% of small and 44% of mid-size banks reported successful integration. Further, 31% of all banks reported negative experiences implementing the new disclosures.

Homebuyer satisfaction vs. lender dissatisfaction

Part of the reason for lender dissatisfaction is the increase in operating costs these new requirements bring. Lenders reported an average $209 increase per loan in post-closing costs — which they cannot recover through increased service charges to homebuyers, according to 17% of lenders surveyed. However, the other 83% of lenders manage their operating adjustment just fine.

More importantly, the show-stopping 91% homebuyer satisfaction rating is a clear indication of the CFPB’s success in raising standards for homebuyer experiences in mortgage lending transactions. After all, increased consumer protection is the reason for the new disclosures, not lender contentment — or ego.

Lenders resistant to change and struggling to catch up with the requirements – which can only be considered “new” for so long – will likely find their footing by the end of 2016. Complaints about delays in closing time attributed to the new disclosures were already weakening by January 2016, when data revealed closings were delayed by only three days on average. Thus, with overwhelming homebuyer satisfaction and limited negative consequences (unless you are talking to lackadaisical lenders), lenders have less and less to wail about the more accustomed the industry becomes to the new paradigm of increased transparency.

Regardless, some lenders will doubtless continue dragging their heels in protest — though they will pay the price of their stubbornness when homebuyers rapidly turn to other institutions providing consumer-friendly mortgage lending. Agents, too, need to recommend compliant mortgage lenders who play by the new rules. Buyers who easily obtain – and further, understand – their mortgages are more likely to refer others to the agent who patiently advised them on the adversarial lending process.

The agent also benefits from lenders who have successfully incorporated the new disclosures into their practice. Lenders who adapt quickly are able to expedite smooth mortgage lending, contributing in turn to the agent’s ability to streamline transactions and ease the stress of acquiring purchase-assist financing for their buyers.

Related topics:
banks, closing disclosures, consumer financial protection bureau (cfpb), lenders, loan estimate, respa, trid

Posted by Amy Thomas | Mar 21, 2016 | Buyers and Sellers, first tuesday Local, Los Angeles-Santa Barbara-Ventura, Real Estate | 0

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

Seller’s agents, prepare for more business. Buyer’s agents, this doesn’t concern you.

Feel left out?

Skupit is a free website which buyers can use to place an offer on a home without the assistance and advice of a buyer’s agent. Buyers use Skupit’s listing lookup feature, searchable by city or zip code, to find a home they want to purchase. The listing lookup takes the user to a page with listing photos, home prices and a map of listing locations.

 

 

If a buyer sees a listing they like, they need only to click on the picture of the home for more information. Skupit then directs the buyer to a full listing page, with details about the property and contact information for the listing agent.

 

 

The buyer is able to submit a question through Skupit, which the seller’s agent will answer. If the buyer is ready to buy the home, all they have to do is click a button to start the process of submitting an offer to purchase.

Skupit also encourages users to get pre-approved for a mortgage — another task seemingly made simple by the push of a button. However, buyers enter this pre-approval process without a buyer’s agent to counsel them on the need to shop various lenders for the best rates and costs.

For now, the site’s listings are currently limited to residential properties in the Los Angeles area. Plans for expansion include all of California in one year, and the rest of the United States in two years.

Our Skupit review

Benefits abound for agents using Skupit — seller’s agents, that is. The seller’s agent is the point of contact for a home listing, as well as the one who answers a buyer’s questions submitted through the site. Thus, seller’s agents may be able to snag buyers and likely become dual agents, and negotiate higher prices for their sellers without the opposing force of a buyer’s agent.

However, seller’s agents need to be cautious: unrepresented buyers lacking a buyer’s agent’s advice on review of a comparable market analysis for the property may be more likely to pursue arbitration or litigation if they are unhappy with the results of the transaction. Seller’s agents may earn the sole fee in such a transaction, but they may also expose themselves to greater liability if they are not diligent.

Buyer’s agents, on the other hand, may have little use for Skupit’s services. Listing information and contacts are available to the buyer’s agent through their MLS. However, buyer’s agents aren’t totally deterred by Skupit.

A website, no matter how intuitive, cannot replace an experienced agent’s advice, negotiation skills and market awareness. Buyers still need guidance through the process of purchasing a home, as well as someone to negotiate the price, terms for payment and conditions of the purchase on their behalf — a teammate, so to speak. Unlike dual agents or seller’s agents negotiating a transaction with an unrepresented buyer, buyer’s agents negotiate solely for the benefit of the buyer.  A buyer’s agent is also paid by the seller, so the buyer’s benefit in enlisting an agent to help them purchase their home is triplicate.

Skupit’s free, easy-to-use interface makes it easier for buyers to connect directly with seller’s agents without the effort of locating a buyer’s agent, but offers buyer’s agents little else they can’t do with the resources they already have. Additionally, the site’s temporarily limited range puts a temporary hold on its usefulness for anyone outside of Los Angeles.

Related topics:
homebuyers

Posted by Carrie B. Reyes | Feb 15, 2016 | Feature Articles, New Laws | 2

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

Think you’re an expert on homeowners’ associations (HOAs)? Then your business is in the Davis-Stirling Common Interest Development (CID) Act. It provides all the basic law regulating California’s CIDs.

Important changes to the Act took place in 2014. Read about them in the context below.

A brief history of the CID Act

Following the enactment of Proposition 13 (Prop 13) in 1978, local property tax revenues began a long-term slowdown which continues to this day. One foreseeable consequence was to leave gaps in funding needed to keep neighborhood services and structures intact.

Prop 13 limits property taxes to 1% of the property’s assessed value at the time of purchase, plus annual consumer-inflation limited adjustments. Prior to Prop 13, property taxes were closer to 3% of a property’s current market value. Further, taxes fluctuated annually based on changes in a property’s fair market value (FMV), a progressive tax based on wealth, not personal income (which is the denominator for consumer inflation).

So, when Prop 13 was enacted, property taxes did not follow the patterns of wealth gained in property values, as they previously did. Initially, this enhanced the wealth of all property owners as they now paid lower tax bills. The now consistent home annual assessment at consumer inflation rates provided a lower annual ceiling for property taxes.

All property owners now had annual tax bills that were more predictable in amount — inflation-limited, not wealth-related. However, the cap on property tax bills gradually reduced revenues local government agencies received which caused public services — which rely on property taxes for funding — to deteriorate.

In 1985, seven years after Prop 13 was enacted, California instituted the CID Act.

The Act allows HOAs or CIDs to:

• levy assessments on owners; and
• create binding rules for owners.

In 2012, California Assembly Bill 805 reorganized the Act and added additional measures. The 2012 changes took effect in January 2014.

Changes to the CID Act

The most significant changes to the Act were:

• Altering the governing documents. If the HOA or CID wishes to alter the governing documents to correct for changes to the Act, the HOA board does not need to call a vote from the full membership of owners — only the board of directors need vote. [Calif. Civil Code §4235]
• Annual budget disclosures. Disclosures need to be made in the HOA or CID’s annual budget report, which are to be distributed to owners 30-90 days before the end of the fiscal year, to include:
  • a pro forma operating budget stating the estimated revenue and expenses accrued that year;
  • a summary of reserves, including the HOA plan to build up reserves;
  • an explanation on the board’s deferral of repairs or replacement of any major component of the project which has a remaining life of 30 years or less;
  • a statement on the board’s intent to levy any assessments to repair or replace a component of the project, and if so the amount, when and how the levy is to be assessed;
  • a detailed statement on any outstanding loans with an original term longer than one year owed by the HOA; and
  • a summary of the association’s various insurance policies. [CC §5300]
• General notice delivery. Delivery of general notices to owners may be in the following formats:
  • first-class mail;
  • email or other electronic means when the owner has consented to receive electronic notices;
  • inclusion in a billing statement, newsletter or similar document;
  • posted in a prominent location designated for notices;
  • inclusion in broadcast television if the HOA or CID regularly broadcasts information for owners this way; or
  • individual delivery to an owner when the owner has specifically so requested. [CC §4245]
• Governing hierarchy. When an inconsistency is exists between the HOA’s or CID’s rules, the following priorities apply:
  • the law;
  • governing documents;
  • the declaration;
  • the articles of incorporation;
  • bylaws; and
  • operating rules. [CC §4205]
• Clarified rules on open forums. Owners, since they are members, are free to speak at any “membership meeting.” Previously, owners were permitted to speak at board meetings and “meetings of the association.” [CC §5000(b)]
• Exclusive use of common area. When an owner wants or requires their individual use of a common area, it may be granted by securing a two-thirds vote from the owners, or for the following reasons:
  • when the property is to be conveyed to the subdivider to redevelop the space within the CID’s plan;
  • to correct encroachments due to construction or improvements;
  • when changes are due to a hardship, aesthetic considerations or environmental conditions;
  • to transfer maintenance to an individual when the common space is not readily accessible or useable to other owners;
  • to accommodate a disability;
  • to grant an amenity, such as a parking or storage space, that is designated for assignment but not yet assigned by declaration to a specific unit; and
  • to install electric vehicle charging stations as long as owners may still walk through the space. [CC §4600]
• Inspection of records, documents. Owners may inspect both association records and governing documents, upon written request. [CC §§5200, 5205]
• Requests in writing. The following requests from owners are to be written:
  • change of information to the association membership list;
  • the addition or removal of a second address on file;
  • delivery of individual notices;
  • opt out of the membership list;
  • receipt of the annual budget or policy report;
  • receipt of all HOA or CID reports. [CC §5260]
• Notice of board meetings. Owners need to be informed under general notification rules of all board meetings, even those that are regularly scheduled. [CC §4920]
• Voting with conflict of interest. A committee member or director needs to abstain from voting when they have a conflict of interest, which is includes:
  • discipline of the director or committee member;
  • assessment of the director or committee member due to damage of a common area;
  • a request for a payment plan for the director or committee member’s overdue assessments;
  • a decision on whether to foreclose an HOA lien on the separate interest of the director or committee member; and
  • a decision on a proposed physical change or grant of exclusive common area use to the separate interest of the director or committee member. [CC §5350]

HOA costs are high for California owners

When purchasing a home subject to HOA rules, the homeowner is agreeing to additional rules and payments. These rules and fees can at times be stifling and hard to swallow. However, high monthly HOA fees are part of the trade-off homeowners make for owning California property after Prop 13.

CID owners get to keep low property tax rates like all other neighborhoods. However, they are also stuck paying high HOA fees to fund the maintenance of their community roads and roadway trees, security and patrols, sanitation, sewers, water mains, parking oversight — everything the local agencies provide to neighborhoods that are not CIDs.

Across California, the average monthly HOA fees are among the highest in the nation, at:

• $40 in Bakersfield;
• $129 in Fresno;
• $285 in Los Angeles;
• $315 in Riverside;
• $22 in Sacramento;
• $296 in San Diego;
• $300 in San Francisco;
• $290 in San Jose;
• $77 in Stockton; and
• $230 in Ventura, according to Trulia.

In many cases, high HOA fees make it significantly cheaper for families to rent their residence rather than buy. Ask any tenant in a CID project.

Before your homebuyer client views a property subject to HOA fees you need to disclose and make them aware of the cost of ownership. After all, it is material information since it may alter their decision as to which of several properties to buy, or the terms of an offer to purchase. These payments are nondeductible ownership costs (since they are paid via property taxes) and can significantly increase housing costs from project to project, and neighborhood to neighborhood.

If your homebuyer is still interested, before placing an offer on the property, review the HOA financial documentation for exposure to HOA liabilities, including a review of HOA operating statements and covenants, conditions and restrictions (CC&Rs).

When you represent a seller of a property in an HOA community, request these documents as soon as possible on taking the listing. Acquiring them before marketing a CID unit will save time and lost escrows down the road and help weed out buyers who are unable or unwilling to comply with the HOA financial conditions and rules.

Related topics:
common interest development (cid), conditions & restrictions (cc&rs), covenants, homeowners association (hoa)

Posted by Carrie B. Reyes | Apr 11, 2016 | Laws and Regulations | 5

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

As the economy begins to take off, homebuyers are finally ready to enter the market and renters are ready to move out on their own. But a noticeable lack of supply is causing difficulties.

There are 9% fewer homes for sale across the U.S. as of January 2016, according to Zillow. It’s much worse in California, with home inventory averaging 15%-30% below last year, depending on the city.

The short supply of homes relative to growing households produces more competition, leading to higher home prices and rents. In California, home prices are 7%-11% higher than a year earlier as of January 2016.

A similar lack of supply threatens Britain’s housing market. But the British are shaking things up to induce more home building. Can California’s learn something from abroad?

How others are encouraging building

In the United Kingdom, the government recently passed new laws to encourage building. They set a target number of new homes to be constructed each year and will provide incentives to meet their target. To achieve this goal, the government will also be given the power to loosen zoning restrictions and to overrule local not-in-my-backyard (NIMBY) advocates.

However, this alone may not do the trick to ease home prices and overcrowding in particular from surging out of control. The government needs to encourage current homeowners to sell, particularly older homeowners who may be sitting on lots of square footage.

A recent article in the Economist suggests Baby Boomers are reluctant to sell today, partly due to the high transaction costs involved in selling. The article reasons homeowners with no children at home are wasting valuable living space in desirable areas, thus driving up home values needlessly. Aging homeowners need to downsize so younger homeowners — with families — can take advantage of the stock of existing homes.

Somewhat closer to home, Massachusetts is proposing to take zoning matters out of the hands of local NIMBYs and address the zoning crisis head-on. If the state bill passes, builders will be able to build denser communities, like multi-family apartment buildings or townhomes, based on demand and not on local opinion. Washington, home to our nation’s “other” tech center, Seattle, has adopted similar planning regulations that have cooled off prices. We can only dream of how a price slowdown in San Francisco would help the local population.

Should California take similar measures?

California’s housing fix

Other states and nations are approaching zoning in a “big government” way, sidestepping local governments. Is this the solution for California’s inventory problem?

It may be a small part of the solution, but only if done right. California is a large state — bigger than Massachusetts and the U.K. put together. Its geography ranges from many populous cities to sprawling suburbs and secluded farmland. Local governments know the unique needs of their cities, and can make decisions to keep living within reach.

But there is a danger in allowing zoning to lie solely in the hands of a local government, too. The danger is a small number of citizens will choose to exclude lower-income households from their community by refusing cheaper housing to be built. After all, the thinking goes, low-income residents can always live in neighboring communities governed by looser zoning laws — right?

Funneling lower-income households into a single, segregated neighborhood perpetuates poverty, which is bad for California. This is why the state requires certain allowances be made for low-income housing, and why many cities choose to make some form of inclusionary housing available to residents.

A simple goal for the number of new housing units in California won’t do, as there’s no guarantee these units will be built in the right places to meet demand (i.e. near the greatest access to jobs). But the state acting to limit the power of local NIMBYs — and letting builders react to local demand — can be a good start.

Related topics:
california zoning, low-income housing, zoning

Posted by Carrie B. Reyes | Apr 4, 2016 | Buyers and Sellers, Real Estate, Sacramento | 0

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

An obnoxious neighbor is one of the worst nightmares a homebuyer doesn’t even realize they have — until they’re awoken by a neighbor’s party at 3:15 in the morning.

Once a homebuyer discovers their new neighbor throws loud parties every weekend, it’s usually too late to change their mind. In Sacramento, homebuyers can look at a map put together by the Sacramento Bee to get some indication about whether their neighborhood is prone to noise complaints.

The neighborhoods receiving the most noise complaints — over 75 complaints each during the past year — are spread across the city limits and include those near:

• Del Paso Boulevard;
• Midtown;
• Oak Park;
• Valley Hi; and
• the Regency Park neighborhood.

Neighborhoods with the fewest noise complaints — fewer than two complaints apiece over the past year — include:

• the Pocket;
• South Land Park; and
• East Sacramento.

Advice for agents

Is there any recourse for a homebuyer who finds out about the noisy neighbor after they move in?

It’s possible, but difficult. You see, the seller of a one-to-four unit residential property is required to fill out and deliver a statutory form called a Transfer Disclosure Statement (TDS), also known as a Condition of Property Disclosure Statement. [Calif. Civil Code §§1102(a), 1102.3; see RPI Form 304]

The TDS directs the seller to disclose any known defects, including neighborhood noise problems or nuisances since these are conditions which might negatively affect the value and desirability of the property.

When an agent fails to disclose a defect which a reasonable physical inspection of the property would have uncovered, the homebuyer has two years from the close of escrow to pursue the seller’s broker and agent to recover losses caused by the broker’s or agent’s negligent failure to disclose observable and known defects affecting the property’s value. [CC §2079.4]

However, no reasonable inspection by the agent will uncover excess noise if it occurs late at night. Therefore, it’s up to the seller to disclose a known noise problem. But if the seller does not believe the noise constitutes a nuisance, they will not disclose it. So it’s difficult for a homebuyer to prove seller deceit in this matter.

One way for homebuyers to make sure the area is the right fit is to take a walk in the neighborhood after dark. This will give them a sense of whether the neighborhood is the right noise level for their lifestyle.

Have a local news tip? Email editorial@firsttuesday.us for coverage.

Related topics:
disclosures, transfer disclosure statement (tds)

Posted by ft Editorial Staff | Oct 10, 2016 | Laws and Regulations, Reader Polls, Real Estate, Your Practice | 0

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

The people have spoken and they want the California Bureau of Real Estate (CalBRE) to reestablish the Ethics and Professional Conduct Code from 1979-1996.

In a recent poll, 88% of voters said the Code of Ethics needs to be reinstated, a majority opinion held by our readers for several years. A 2012 poll yielded similar results with 81% voting for reestablishment of the Code.

Now, support for the Code of Ethics appears even stronger, perhaps signaling a perceived greater need for the CalBRE to adopt and enforce ethical standards for California’s real estate industry.

What is the Code of Ethics?

In 1979, the CalBRE — then the Department of Real Estate — adopted Regulation 2785, known as the Ethics and Professional Conduct Code. The Code established a set of rules for proper conduct by real estate licensees, which covered:

• unlawful conduct, related to fraud and dishonest acts prohibited by law;
• unethical conduct, 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.

By enforcing a standard mode of conduct and ethics, the CalBRE aimed to better protect members of the public and improve the poor public image of real estate professionals, which had been diminished by unregulated and unethical business practices in the industry.

The Code of Ethics maintained its presence for nearly two decades, before its repeal in 1996 under Governor Pete Wilson’s Regulatory Reform Project — a spate of legislation that loosened governmental regulations in California.

The need for CalBRE guidance

While California law still regulates the conduct of real estate agents and brokers, the CalBRE no longer enforces its own code of conduct to standardize and encourage ethical practices within the industry.

Opponents of reestablishing the Code of Ethics contend existing California statutes are sufficient, precluding the need for the CalBRE to enforce ethical standards. Some also cite the trade union’s independent Code of Ethics as an adequate alternative to state-endorsed standards.

However, ethical guidelines suggested by the California Association of Realtor (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 state.

It is the purpose of regulatory agencies to communicate and enforce state law to the professionals it controls. 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, a CalBRE 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 CalBRE. 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.

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

Posted by ft Editorial Staff | Nov 14, 2016 | Laws and Regulations, Reader Polls, Real Estate | 1

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

Our readers are ready for immigration reform. According to a recent poll, 43% of our readers believe reforming immigration policy will have a positive effect on California’s housing market, while only 25% said it will have a negative effect. 32% voted immigration reform will not impact the market at all.

Readers’ perspectives on the issue have oscillated over the past few years. In 2013, results were similar to recent opinions: 49% of our voters said immigration reform would positively impact the market, while only 33% said it would have a negative effect. However, opinions shifted dramatically in 2015 when 56% voted immigration reform would negatively affect the market and 36% believed it would have a positive effect.

Immigration has sparked much debate in California, but the influx of migrants has also increased housing demand, influencing the direction of the real estate market — a trend our readers are catching on to.

 

Immigration reform in California

The Golden State has a long history of immigration, as its population and economy have always been heavily influenced by immigrants.

Ongoing immigration trends often spur outrage from residents who fear undocumented immigrants damage the economy and seize employment opportunities otherwise available to existing citizens — a belief that has resulted in anti-immigration laws like Proposition 187 in 1994.

However, despite the xenophobic response from some, California has moved forward with progressive immigration reform, providing undocumented immigrants a better quality of life than other states.

California law now permits immigrants with an Individual Tax Identification Number (ITIN) to:

• obtain driver licenses and work permits;
• attend colleges with in-state tuition; and
• purchase homes and apply forITIN mortgages (though lending standards are higher).

Further, undocumented immigrants were recently afforded the opportunity to become licensed real estate agents, as the California Bureau of Real Estate (CalBRE) now issues licenses regardless of immigration or citizenship status.

California is continuing a spate of immigration-friendly legislation and policies that seek to incorporate immigrants into our economy. By expanding rights to immigrants, the state is allowing all residents and immigrants to contribute to the state’s economy — an advantage many xenophobic states are not able to obtain with harsh anti-immigration laws.

 

A positive outlook for the market

A major benefit to progressive immigration reform in California is the resulting boost to the homeownership rate. Creating pathways to citizenship increases the likelihood of homeownership among currently undocumented immigrants, resulting in an increase in residential construction the state is severely in need of.

The potential for growth becomes clearer when taking into account the fact that undocumented immigrant workers hold a higher number of jobs in the construction industry, according to the Public Policy Center of California.

Further, immigrants who become U.S. citizens are likely to contribute substantial amounts in real estate costs, ultimately leading to increased consumer spending that significantly benefits the economy — if progressive immigration reform allows for it.

Both the National Association of Hispanic Real Estate Professionals (NAHREP) and the Bipartisan Policy Center also note immigration reform offers broader benefits to the economy, including:

• reducing the cumulative federal deficit by $570 billion;
• expanding the U.S. labor force by 8.4 million without taking away from average worker wages;
• increasing economic growth by 4.8%; and
• increasing gross domestic product (GDP) by 0.5%.

Conversely, suppressing immigration reform or promoting anti-immigration laws stifles immigrant access to legal employment and citizenship, resulting in:

• an increase in the federal deficit by $100 billion; and
• a reduction of GDP by 1.5%.

For the housing market, immigration reform ultimately translates into more real estate transactions and construction. Real estate professionals privy to the benefits of California immigration may use this as an opportunity to grow their business and the local economy — a prospect our readers may be well-aware of in light of their recent votes.

 

Related articles:

Migration influences California’s housing market

Xenophobia and the California real estate licensee

Running the numbers on immigration

 

Related topics:

Posted by Sarah Kolvas | Jun 13, 2016 | Finance, Laws and Regulations, Real Estate | 1

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

The most common reasons investors and bond holders in the secondary mortgage market refuse to buy mortgages from originators are highlighted in a list published by the authoring attorney of the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) integrated disclosures (TRID) rules.

To recap: the new TRID rules, collectively called Know Before You Owe, are designed to protect consumers from onerous mortgages. The regulations, which became effective October3, 2015, require originating lenders to provide homebuyers with the generic Loan Estimate form, combining the prior TILA disclosure and Good Faith Estimate (GFE), within three business days after the lender receives a homebuyer’s mortgage application. [See RPI Form 204-5]

Further, originating lenders are to provide a Closing Disclosure which summarizes the “final” mortgage terms and details at least three days before the mortgage closes. [See RPI Form 402]

It is worth noting that the two sets of disclosures have been in place for decades, and were streamlined to better inform the homebuyer about the funds they are borrowing to purchase a home and encourage comparison between the two documents.

The new disclosures also mandate an extra three-day waiting period when the lender makes a significant change in the mortgage terms documented in the Loan Estimate. Some lenders have taken umbrage with TRID, alleging the timing requirements unnecessarily prolong the mortgage origination process and negatively impact closings. Conversely, the vast majority of homebuyers are more supportive of the new regulations.

Despite TRID’s success with homebuyers (who are the very participants the new regulations were designed to benefit), recent findings show some mortgage investors are rejecting TRID mortgages in the secondary mortgage market due to the following origination defects that indicate noncompliance with TRID rules.

1. The Loan Estimate and Closing Disclosure list the same date.

This is an irregularity that directly conflicts with timing requirements under TRID rules.

Lenders are required to deliver the Loan Estimate no later than three business days after receipt of the homebuyer’s application and at least seven business days prior to consummation of the transaction. [12 Code of Federal Regulations §§1026.19(a)]

However, when the lender receives new information about the property, the homebuyer or the mortgage terms (e.g., an appraisal, an updated credit report or a request for a change of terms by the homebuyer), the lender is to deliver a revised Loan Estimate within three business days after receiving the new information. [12 CFR §§1026.19(e)(3)(iv), (e)(4)]

The revised Loan Estimate may not be delivered on or after the date the Closing Disclosure is delivered. [12 CFR §1026.19(e)(4)(ii)]

While the Closing Disclosure needs to be delivered at least three business days before consummation of the mortgage, a revised Loan Estimate needs to be delivered no later than four business days prior to consummation — at least a day sooner than the Closing Disclosure. [12 CFR §§1026.19(e)(4)(ii), (f)(1)(ii)(A)]

Thus, a Loan Estimate that bears the same date as the Closing Disclosure indicates that, if the Loan Estimate was revised, the lender did not comply with TRID rules. When a Loan Estimate is not revised, identical dates still make it impossible for an investor to verify whether the Loan Estimate was provided to the homebuyer prior to delivery of the Closing Document.

2. Title fees are not formatted correctly on the Closing Disclosure.

TRID includes very specific format and language requirements for the content of the statutory Closing Disclosure. For example, the controlling code requires any title insurance fees be preceded by “Title — ” with an em dash spaced on both sides. [12 CFR §1026.38 (g)(4)(i); see RPI Form 402 §C]

Seemingly innocuous technical errors like a missing space or incorrect dash type are still red flags to mortgage investors who are looking for infallible conformance.

3. The Closing Disclosure is missing contact information.

The Closing Disclosure requires contact information for all participants of the transaction, including the lender, mortgage broker, real estate broker (buyer’s and seller’s) and escrow agent involved in the transaction. [12 CFR §1026.38(r); see RPI Form 402, Page 5]

Missing information, especially a broker’s California Bureau of Real Estate (CalBRE) license number, is a critical defect the secondary mortgage market investors look for when buying TRID mortgages.

4. Alternative Closing Disclosures fail to show subordinate financing.

The Consumer Financial Protection Bureau (CFPB) permits use of an alternative Closing Disclosure for transactions that do not involve a seller (i.e., refinances and home equity loans).

However, for a transaction involving multiple mortgages (one in a first position and another or multiple in a junior position), there is no requirement for the alternative form to include the cash to close for the subordinate mortgage. This requires the escrow agent to total the cash needed to close the transaction for each mortgage separately and then determine where to include the total amounts, or use two separate forms.

The missing information does not present mortgage investors with a full picture of the ultimate condition of the financing and creates an opportunity for untraceable miscalculations — contrary to the objectives of TRID.

5. The title company’s file number is missing.

Each mortgage transaction is assigned a file number used to trace the mortgage through the entire application and origination process. Think of it as a financial fingerprint that is unique to the transaction. The file number needs to be included on the Closing Disclosure. [12 CFR §1026.38(a)(3)(v)]

Failure to include the file number prevents proper identification of the mortgage transaction, triggering a risk to investors who buy the mortgage in the secondary mortgage market.

6. Third-party authorization forms are used.

Some mortgage files include third-party authorization forms signed by the homebuyer, releasing their nonpublic, personal information to their real estate agent to permit them access to the homebuyer’s Closing Disclosure for further consultation before closing.

However, mortgage investors are rejecting these mortgages since they view these forms as not in compliance with privacy and information protection laws.

This issue — a concern for buyer’s agents aiming to fulfill their fiduciary duties — is still awaiting further guidance by the CFPB.

7. The Closing Disclosure is not provided.

Escrow agents are foregoing delivery of the Closing Disclosure to sellers altogether, instead providing sellers with the obsolete HUD-1 Settlement Statement or ALTA Settlement Statement that were previously required before TRID went into effect at the end of 2015.

However, TRID rules do not allow the use of these outdated forms in lieu of the newly mandated Closing Disclosure. The “new” forms are now the industry standard.

8. Escrow agents are not following simultaneous issuance rules for title insurance.

In California, sellers typically pay title insurance premiums to insure their grant deed for the sale in mortgage transactions.

When the homebuyer pays, they often receive discounted title insurance premiums for the simultaneous issuance of policies to both the homebuyer and the lender. TRID rules provide a specific method for calculating these premiums on the Loan Estimate which does not include the discounts for simultaneously issued policies. [12 CFR §1026.37(g)(4)]

The CFPB enforces this calculation in an effort to:

• standardize premium calculations across all states; and
• avoid homebuyer confusion when the distribution of costs between the two premiums varies based on whether the homebuyer elects to purchase a title insurance policy.

However, some escrow agents are not properly applying this calculation in accordance with TRID regulations since it does not accurately represent the discounted premiums actually charged.

9. The “Optional” designation is used incorrectly.

The Closing Disclosure includes an “Other” section where any additional fees paid by the homebuyer are listed. Costs agreed to by the homebuyer and paid at or before closing, such as premiums for separate insurance, warranty, guarantee or event-coverage products, are indicated with an “(optional)” description. [12 CFR §1026.38(g)(4); see RPI Form 402 §H]

However, applying the “optional” designation to transaction fees already included on the form is an incorrect use of the description as it duplicates existing fees.

10. Fee names on the Loan Estimate and Closing Disclosure are mismatched.

TRID rules require consistent terminology across both forms so the homebuyer and their agent can seamlessly compare the two sets of data for dollar changes made by the lender. [12 CFR §1026.38(h)(4)]

Thus, any fees included on the Loan Estimate need to bear the exact same title or name on the Closing Disclosure. For example, a “credit report fee” is to be listed as such on both the Loan Estimate and Closing Disclosure, with no variations in wording. Different names for the same fee create ambiguities and send up red flags for investors.

A heads up to agents

While TRID regulations were enacted to benefit the homebuyer and not mortgage originators or secondary mortgage market investors who buy originations, inability for originating lenders to sell their mortgages in the secondary market has widespread consequences. The originator’s resale of a mortgage is an integral component of their business practice and of today’s mortgage market. Resale in the secondary mortgage market provides liquidity to the ecosystem and ultimately increases the availability of mortgage funds to homebuyers.

When originating lenders are unable to sell their mortgages — and at optimal prices for full compliance — origination costs and interest rates to all homebuyers increase. More importantly, originating lenders need to have staff which ensures their TRID compliance if the lender is to avoid delays and disruptions for your homebuyers.

As a buyer’s agent, help avoid TRID violations (deliberate or inadvertent) by paying close attention to your homebuyer’s Loan Estimate and Closing Disclosure to spot these common irregularities. In a few minutes, you will have cleared the Closing Disclosure or noted and sought the correction of errors — which the lender and escrow can cure, keeping the transaction on an even keel and the closing date intact.

Related topics:
closing disclosures, loan estimate, real estate settlement procedures act (respa), secondary mortgage market, trid, truth in lending act (tila)

Posted by Giang Hoang-Burdette | Nov 4, 2016 | New Laws | 0

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

Calif. Code of Civil Procedure §1282.5
Added by S.B. 1007
Effective date: January 1, 2017

An arbitration participant has the right to request a shorthand transcription of the arbitration proceedings with the demand for arbitration or during scheduling. Unless otherwise indicated in the arbitration agreement, the participant requesting the shorthand transcription will pay the transcription fees.

If an arbitrator refuses to allow a transcription of the arbitration, the arbitration participant requesting the transcription may petition a court to force the transcription to proceed.

Read more:
Read the bill text.

Editor’s note — first tuesday has long believed arbitration is a subpar alternative dispute resolution method. For a discussion of why, see:

Arbitration in real estate contracts: Will you sign away your right to your day in court?

Client Q&A: What is arbitration?

Mediation: best, faster dispute resolution

 

Related topics:
arbitration, mediation

Posted by ft Editorial Staff | Aug 8, 2016 | Buyers and Sellers, Investment, Real Estate | 0

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

The U.S. Treasury Department is restricting all-cash luxury real estate purchases by buyers using shell companies. A recent report revealed 25% of all-cash purchases above $2 million included names on suspicious activity reports citing money laundering.

Major metropolitan areas throughout the U.S., including San Francisco, Los Angeles and San Diego, now face strict limitations on all-cash luxury real estate purchases by shell company buyers.

Stay tuned for an upcoming article in which first tuesday examines these regulations and their potential effects on California real estate.

Related articles:
IRS proposal for reporting ownership of an LLC
Identity theft prevention for MLOs and MLBs

Related topics:
all-cash buyers, llc,

Posted by Giang Hoang-Burdette | Oct 25, 2016 | Mortgages, New Laws, Real Estate | 0

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

Calif. Civil Code §2924c
Amended by S.B. 983
Effective date: January 1, 2017

For nonjudicial foreclosures which are resolved (e.g., reinstatement, foreclosure alternative, etc.) after the notice of default (NOD) is recorded, but before posting the notice of trustee’s sale (NOTS), the maximum base trustee’s fee has been increased to:

• $350 from $300 for foreclosure of a debt of $150,000 or less; and
• $300 from $250 for foreclosure of a debt of more than $150,000.

For nonjudicial foreclosures which are resolved after posting the NOTS, but before the trustee’s sale, the maximum base trustee’s fee has been increased to:

• $475 from $425 for foreclosure of a debt of $150,000 or less; and
• $410 from $360 for foreclosure of a debt of more than $150,000.

Editor’s note — The maximum base fee is in addition to the percentage fees based on the outstanding principal. The percentage fee amounts and thresholds were unchanged.

Related topics:
default, foreclosure, nonjudicial foreclosure, notice of default (nod), trustee

Posted by Giang Hoang-Burdette | Oct 7, 2016 | Marketing Flyers, New Laws, Your Practice | 0

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

Calif. Business and Professions Code §10140.6
Amended and added by A.B. 1650
Effective date: January 1, 2018

All real estate licensees will be required to provide their name, California Bureau of Real Estate (CalBRE) license number, Nationwide Mortgage Licensing System (NMLS) ID number (if applicable) and their responsible broker’s identity on:

• real estate purchase agreements;
• business cards;
• stationary;
• advertising flyers;
• television advertisements;
• print advertisements;
• electronic media;
• directional signs; and
• any other materials soliciting business from the public.

The responsible broker’s identity is the responsible broker’s name or name and license number, not merely a team name or fictitious business name filed by the sales agent with the broker’s authorization.

“For sale”, rent, lease, “open house” and directional signs are exempt from containing the above identification information only if they:

• display the responsible broker’s name, or name and license number, without reference to a broker associate or sales agent; or
• do not display information identifying a licensee.

Editor’s note — This law fixes inconsistent identification requirements currently imposed on individuals versus real estate teams. The 2018 compliance date gives licensees a year to revise their solicitation materials.

Related articles:

Regulations for fictitious business names and team names under a responsible broker

Related topics:
department of real estate (dre), mortgage loan originator (mlo), salesperson

Posted by ft Editorial Staff | Apr 20, 2016 | Feature Articles, Laws and Regulations, Licensing and Education | 41

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

California’s unique population and economy have always been heavily influenced by immigration, and so have its laws. This article analyzes California’s regulatory history regarding immigrants, discrimination and real estate.

California immigrants and real estate services

The Golden State opened the gates to real estate licensing for undocumented immigrants in January 2016. Noncitizens are now able to apply for and obtain a real estate license, a leap forward into economic stability for their households — and headlong into significant opposition from many California residents.

Any celebration of the new license eligibility for immigrants has been lost in the cacophonic uproar of dissenters with grievances. However, these cries of outrage are old news. Despite its multicultural history, California has borne several blatant attacks on immigrant wellbeing in the past.

Prop 187 and the birth of modern xenophobia

Xenophobia is an irrational, baseless fear of the foreign — and it is no stranger to California.

Disregarding the state’s early history of clashes between its settlers from different nations, xenophobia in California is not so archaic as it may seem to supporters of progressive immigration law.

Proposition 187, introduced by Governor Pete Wilson in 1994, was designed to cut off public benefits to immigrants. The proposition prohibited immigrants from public health care, social services and basic education and required certain citizens working in the public sphere (teachers, police, real estate licensees) to report undocumented individuals’ discovered immigration status to the state.

Prop 187 was essentially the cumulative effect of a deep recession and fear that immigrants were stealing scarce employment opportunities, and thus wealth, from California citizens — a fear stoked by the California Legislative Analyst Office’s prediction that the proposition was to save the state $200 million in public benefits costs.

On the November 8 ballot in 1994, Prop 187 was approved by approximately 59% of voters. However, it was never enacted. Mere days after its approval, multiple federal lawsuits were filed by various activist groups, including the:

• Mexican American Legal Defense and Education Fund (MALDEF);
• League of United Latin American Citizens (LULAC); and
• American Civil Liberties Union (ACLU).

In response to the lawsuits, a permanent injunction on enforcement of the proposition was issued by Federal  Judge Mariana Pfaelzer in 1995. After failed attempts by the state to have the case and injunction dismissed, Prop 187 was declared officially dead in 1999.

Immigrants’ public benefits were protected; however, the damage intended was already done. Despite the injunction and the proposition’s defeat, many citizens retained their now imbedded wary regard for immigrants, believing constitutional consideration to be the usurpation of rights and benefits that ought to be reserved for United States citizens.

California’s progressive immigration reform development

Since Prop 187 was killed, California has made significant strides in immigration reform allowing undocumented immigrants to maintain a better quality of life than in other states. California law allows immigrants with an Individual Tax Identification Number (ITIN) – for paying income taxes – to obtain driver licenses and work permits, attend California colleges with in-state tuition and purchase homes. Immigrants are even able to apply for ITIN mortgages, although lending standards are higher for financing without a social security number (SSN).

Additionally, immigrant entrepreneurs may apply for the EB-5 visa program. The EB-5 visa program grants foreign national entrepreneurs a green card in exchange for an investment in a commercial enterprise:

• of either $500,000 or $1 million; and
• which adds jobs to the U.S. economy. [8 United States Code §1153(b)(5)]

Add to these benefits the recent real estate licensing approval and elimination of the California Bureau of Real Estate (CalBRE)’s prior regulations requiring license applicants to report their immigration status, a product of the Pete Wilson era. Until January 1, 2016, real estate license applicants had been required to fill out and submit a Proof of Citizenship form to obtain their license — a form recently dashed from the licensing process by a progressive bill. Now, instead of proving their citizenship or documented immigration status, today’s immigrants need only an ITIN number to apply for a license. [Calif. Business and Professions Code §§30, 135.5]

Thus, immigrants in California comparatively have it pretty good. In turn, so do active California real estate brokers and their agents.

Immigrants who are able to work in real estate — made possible by access to education, a driver license and a real estate license — are, in turn, able to earn a living. Their earnings becoming savings, which in turn become a down payment on a home of their own. Immigrants will be able to infuse the housing market with more buyers, contributing to California’s overall homeownership rate, home sales volume and economic benefit.

2.6 million undocumented immigrants reside in California as of 2015. Thus, by expanding rights to immigrants which allow them to contribute to the state’s economic advantage, we are creating a win-win scenario that xenophobic states are not able to obtain with their harsh anti-immigration laws.

Further, forbidding such benefits from immigrants will not stop them from pursuing jobs and income, so the state might as well benefit from immigrants’ active contributions without forcing the wool over its own eyes. Immigrants have long performed real estate-related services for each other without proper licensing since a license was not available to them — whether the state knew it or not.

Worse, because they reinforce enclaves (ghettos), xenophobic attitudes toward immigrants have often caused noncitizens to limit their trust to people in their immediate circle. In turn, many undocumented immigrants took it upon themselves to find suitable lodging for others and earn an under-the-counter living performing the same services as the California licensees their constituents did not trust.

By providing legitimate real estate licensing and other employment opportunities, California is able to keep track of undocumented noncitizens within the state. Licensed immigrants are now held to the same rules of conduct as licensees who are California citizens, and are subject to the same repercussions for bad behavior if a complaint is filed against them. This equal standing provides the state with a way of disciplining bad actors — both citizens and noncitizens — in real estate transactions, another step toward synchronized, standard industry practices.

Banishing xenophobia in California real estate

Agents can use the new license eligibility law to expand their brokerages and teams, make new industry connections and reach into new California markets. Licensed immigrants bridge the stigmatic gap between California citizens and noncitizens by having direct contact with members of the public, helping immigrants attain better accommodations and assimilate without facing the pompous attitudes of xenophobic “patriots.”

Professional connections are good for business, and the more diverse the better. Expansion into niche markets and social groups create business alliances through civic engagement and community relationships. Real estate agents and brokers who embrace California’s immigrant population open their livelihood to considerably more homebuyers, sellers and colleagues who can help give them a leg up on particular neighbors and client preferences. The late entry of immigrants to homeownership will be made sooner, and help them develop personal wealth. Shunning immigrants from the client base is a poor choice for agents and brokers in California, particularly considering how complex and diverse California’s population really is.

Difficulty with high demand and low inventory may limit urban housing for immigrants, but suburbs and other less impacted areas can benefit from an influx of existing ready, willing and able homebuyers. More homeowners and renters also mean more opportunity for housing turnover, stimulating a healthy market. Thus, the economic benefits – which have no concern for national borders – outweigh the backward patriotism of xenophobic citizens unwilling to welcome economic growth through competent, productive immigrants ready to establish themselves in California and continue to add new and interesting delights to the state’s economic palate.

Related topics:
california, immigration, real estate licensing

Posted by ft Editorial Staff | Feb 22, 2016 | Buyers and Sellers, Real Estate | 1

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

 

A recent study of “romantic” listing terms found that out of 1.6 million listings:

• “love” was used to describe cheaper homes; and
• “sexy” or “seductive” were used to describe more expensive homes.

Related articles:
FARM: Reviving your listing
Online listing photos help homes sell faster

Related topics:
home prices, listing,