Posted by Carrie B. Reyes | Dec 31, 2015 | Feature Articles, Laws and Regulations, Market Watch | 0

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

Learn about the changes brought to California’s real estate market in 2015 and how they’ll impact real estate business in the coming year.

New real estate laws

Each year, federal and state governments pass new laws which affect California real estate transactions, homeowners and agents. In 2015, the biggest change took place in the world of mortgage origination disclosures.

The Consumer Financial Protection Bureau (CFPB) introduced new integrated disclosures to replace the old required consumer mortgage lender disclosures:

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

There was lender concern that use of the new disclosures may delay closings and somehow hurt home sales after they took effect in October 2015, a time of the year when sales volume is greatly reduced as the norm. However, while closings slowed in November 2015, timely closings were restored by the end of the year.

One real estate-related law to look ahead to in 2016 is the newly required Office Management and Supervision (OMS) continuing education (CE) course mandatory for brokers and sales agents renewing their licenses in California. Beginning January 1, 2016, California Bureau of Real Estate (CalBRE)-licensed brokers and sales agents now need to complete an approved OMS course as part of their continuing education requirements. [Calif. Business and Professions Code § 10170.5]

Editor’s note — first tuesday was the first CE provider to include the required OMS course in every CalBRE continuing education course enrollment. View enrollment details here.

To catch up on the many other new real estate laws introduced in 2015 — most of which will take effect beginning in 2016 — see:

• New real estate laws; and
• Pending real estate laws.

Economic picture — here and abroad

The big news going into 2016 is the Fed’s decision to increase the Federal Funds rate which directly affects ARM rates. This hovered around 0% from 2009 to December 2015. At that point, the Fed increased the rate to fall within their target range of 0.25%-0.5%. Looking forward, the Fed indicates they will gradually increase this short-term rate nearly one percentage point in each of the coming three years and plans for the Federal Funds rate to rest around 3%-4% by 2018.

This rate increase is of immense importance to the real estate market, since rising mortgage rates makes borrowing dollars more expensive for homebuyers. In turn, buyer purchasing power is reduced as the mortgage amount for which a buyer is able to qualify decreases. Thus, home sales volume are likely to slip and prices will suffer. 2016 won’t likely experience a decrease in prices, but by 2017 sellers (and their agents) will have lost their sticky pricing illusions and prices will dip briefly before we head into the next expansion, on the tail of a swiftly recovering jobs market.

That’s here in California, and more broadly across the nation. But the global economy experienced several setbacks in 2015, from the stalled recovery in the Eurozone and Japan to China’s renminbi decline and Brazil’s, Russia’s and Turkey’s magically shrinking economies. How do these global forces influence our U.S. economy, and more specifically the real estate market?

First, the uncertainty of many global markets causes foreign investors to eye U.S. Treasury Notes as stable. Parking their money in 10-year T-Notes is a safe bet while their own nations deal with economic setbacks. Therefore, as long as investors place heavy value on a 2% return for 10-year T-Notes, fixed rate mortgage (FRM) rates will remain near their current low rates of 4% or below. As 2016 moves along, these investors will eventually withdraw from 10-year T-Notes as they find investment opportunities in their home countries, and FRM rates will increase.

14% of real estate agents surveyed by the California Association of Realtors assisted international clients in 2014, and reports from national sources indicate the share of foreign buyers continued to rise in 2015. The largest international investor presence in California is found in San Francisco and Los Angeles.

However, international interest in owning California’s real estate will subside when foreign economies begin to improve, likely by late 2016. Most foreign investors hail from China, and investors have begun to look to more stable sources of income following China’s economic shock late in 2015. More importantly, the relatively strong U.S. dollar now makes it difficult for Chinese investors — and investors from other global economies in poor shape — to purchase U.S. real estate in 2016. Therefore, expect to see the investor presence decline somewhat throughout 2016.

California’s housing market

California’s housing market experienced a modest boost in 2015 over the previous year. Home sales volume increased about 9% over 2014, with roughly 39,000 more homes sold in 2015. For historical perspective, 2015 is about level with 2013, a year when speculator buying greatly increased sales volume, and about 300,000 — or 40% — less than the number of homes sold in 2005 during the Millennium Boom’s peak.

Home prices also increased in 2015, ending the year 7%-10% higher than the same time at the end of 2014. Prices increased more quickly in low-tier homes and less so in high-tier homes, continuing the bumpy plateau sales volume experienced throughout this long recovery.

Construction across California continued to recover in 2015, but at a reduced pace. Single family residential (SFR) construction starts rose by 10% over the previous year. Multi-family construction rose by 20% over 2014.

This is an impressive recovery for multi-family starts, which experienced the best year since the multi-family boom of the 1980s. However, SFR construction starts still have much room for improvement, currently experiencing only one-quarter of the construction pace of the Millennium Boom.

Going forward, expect history to repeat itself. In the 1980s, the Baby Boomer generation produced high demand for multi-family rentals as they graduated and finally found jobs. This environment fueled the boom in multi-family construction. In the following decade, their desire to trade up for SFR housing fueled the late 1980’s and l990’s boom in SFR construction.

Now, the children of the Baby Boomer generation — Generation Y (Gen Y) — are finally coming of age, albeit belatedly in the aftermath of the Great Recession. As Gen Y moves out of dorms and parents’ basements and look for apartments to rent or buy at a reduced cost near urban employment centers, multi-family will continue to outpace SFR construction, swelling to a peak around 2020.The shift from apartments to SFRs for Gen Ys will then create vacancies in apartments, as occurred in the early 1990s.

Extended forecast for California’s real estate market

How will home sales volume and prices likely fare in 2016 and beyond?

Sales volume is likely to continue its rise through the first part of 2016 as job numbers continue to grow. But this growth will be short-lived, to fall back in the months following the inevitable FRM rate increase. The FRM rate rise is likely to occur after mid-2016, thus sales volume will likely slip in the second half of 2016.

Anticipate prices to continue to rise slightly throughout 2016. However, after home sales volume trends down due to the FRM rate increase, expect prices to follow within 9-12 months. Absent other extraneous factors (like rampant speculation, as occurred in 2012-2014), prices follow home sales volume movement axiomatically.

Strategic defaults and bankruptcies will rise slightly heading into 2018, as occurred during the mid-1980s and mid-1990s recoveries when the Fed raised rates for the first time in those recovery periods.

The good news for sellers — not buyers — is home prices won’t stay down for long, despite interest rate increases. The jobs recovery will give home sales a needed boost in 2018, which will cause prices to begin rising again around mid-2018, first led by returning speculator acquisitions, then end user occupants. Increased construction starts will fill user demand for more housing in coastal city centers.

Rents and prices will then rise dramatically with demand centered in urban areas close to the best-paid employment, but less so in inland regions. Smaller coastal cities will likely fail to lift zoning restrictions on much needed high-density, high-rise multi-family starts driving Gen Y to other communities. Members of Gen Y will enter the rental and homebuying market en masse; in a demand convergence, their Baby Boomer parents will continue to retire in increasing numbers, selling and buying rather than renting. Home inventory for sale will be tight without new zoning and construction, causing prices to rise.

As a result, new real estate licensees will flood the market, large broker firms adding sales agents to match the cyclically higher sales volume.

Flying into all this excess, the Fed is likely to induce the next business recession. The hope is the Fed won’t let the economy get too out of hand before acting to cool it off, and risk another Great Recession and zero-to-negative interest rates.

Factors to watch out for in 2016 and beyond:

• Keep an eye on foreign investors in your local real estate market. The global upheaval makes the U.S. a very attractive place to invest, but the strong dollar makes it difficult for foreign investors to enter the U.S. dollar-dominated asset market.
• Watch for interest rates increases. While the short-term rate began to increase in December 2015 and immediately affect ARM rates, first tuesday expects FRM rates to increase later, after mid-2016 due to investor movement. But no matter when FRM rates do rise, prepare for sales volume to decline and prices to follow, albeit briefly.
• Stay informed on movements in your local jobs market. While influenced by global and national economics, real estate is significantly a local phenomenon. Therefore, future housing market movement can be foreseen in improvements (or failures) in the quality and quantity of employment immediately available to the local population.

Related topics:
california home prices, california real estate, construction, foreign real estate investor, law

Posted by Carrie B. Reyes | Jun 26, 2015 | Buyers and Sellers, Your Practice | 0

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

If you’re a real estate agent near a military base — and you likely are since California is home to dozens of military bases — you’ve probably had the privilege of assisting a military family buy, rent or sell a home.

Serving in the military usually means moving within a couple years of arriving in a new community. Turnover is high and time is especially important when buying and selling. It’s a challenge for military homeowners. Agents assisting military homeowners share in the challenge, but have the opportunity to develop expertise in a niche market with a great referral base.

In most cases, a homebuyer needs to reside in their home for two-to-five years (depending on the location) for owning to make more financial sense than renting, mostly due to transaction costs. In California’s largest military populace — San Diego — the average breakeven horizon when buying makes more sense than renting is 3.8 years.

Therefore, to avoid losing money on a home purchase, a military homebuyer in San Diego either has to:

• bet on getting reassigned to the same duty station at the end of their current (usually two-year) tour; or
• plan to rent their home out after they move.

San Diego military families also have it hard when it comes to home prices. The median home value near military bases is $588,000, according to Zillow. This is 24% higher than the San Diego County average media home value of $475,000.

This same analysis shows home prices are more volatile near military bases regardless of the location:

Source: Zillow

How do military bases support home prices?

Given the hardships and uncertainty of homebuying as a member of the military, how do home prices stay significantly elevated in areas dependent on a large military population?

It’s possible the high turnover rate of military homebuyers — on top of the reliable income provided by military jobs — give home prices an extra boost.

Further, each active duty military member receives a basic housing allowance. The housing allowance acts as a subsidy inflating local home prices.

Basic housing allowance amounts are based on the servicemembers’s duty location, pay grade and whether or not the member has dependents. This housing allowance is meant to cover a family’s housing expenses typical to the area. The housing allowance is usually adjusted annually, based on changes in the local economy.

Current housing allowance amounts are available here.

This housing allowance is a helpful yardstick, and not just for military homebuyers. It’s also used by military homebuyers-turned-landlords when they move away from their duty stations.

For example, when a military family finds out they are scheduled to move, finding a renter is as easy as contacting their network to find another military family that has orders to that duty station. Looking up the housing allowance gives the military landlord an easy way to determine how much rent to charge.

The agent’s role

Real estate agents in areas with large military populations ought to take advantage of the opportunities presented. These include serving as the:

1. buyer’s agent for military families new to the area;
2. property manager for families choosing to rent out their homes when they move away; and
3. seller’s agent when the military family eventually sells.

Since military turnover is continuous, make sure you let current military clients know you’re happy to help their military colleagues who are new to the area. The military community is tightly knit. One military referral goes a long way.

Having trouble getting your foot in the door? Try these steps:

• familiarize yourself with the ins-ands-outs of U.S. Department of Veterans Affairs (VA) mortgages;
• advertise your willingness to work with military families on your real estate website and marketing materials; and
• specify that you are a relocation specialist for active-duty military.

Are you already “in” with the military community? What are your tips? Share them in the comments!

Related article:

VA mortgage basics

Related topics:
department of veterans affairs (va), home prices, military,

Posted by Amy Thomas | Aug 25, 2015 | Laws and Regulations, Real Estate, Tax | 0

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

Once again, the neck of the Mortgage Forgiveness Debt Relief Act (MFDRA) is in the guillotine. Senators Dean Heller of Nevada and Debbie Stabenow of Michigan intend to rescue the home foreclosure tax relief, advocating the creation of a bipartisan bill to extend the act’s protections through 2016.

This is the second time the MFDRA has come before Congress for an extension. The last extension in 2014 squeaked by to pass on December 31, 2014. The new extension is likely destined for the same fate – several months have already crawled by with no action from Congress for underwater homeowners – those exposed to short sales and foreclosures.

Another bill attempting to permanently exclude mortgage forgiveness debt from taxable income has been introduced, but the likelihood of either coming into effect is wishful thinking.

Is the MFDRA extension a big deal in California?

The effect of the MFDRA extension on California residents depends on whether a mortgage is a recourse or nonrecourse debt. California law determines purchase-assist debt secured by a one-to-four unit principal residence and discharged on a short sale (or foreclosure) is nonrecourse debt.

Discharge of indebtedness income due to the discount (short pay) on the short sale of a property encumbered by a nonrecourse debt is exempt from taxation as income under federal tax law. This protection is separate and unaffected by the outcome of the battle over another MFDRA extension. [26 Code of Federal Regulations §1.1001-2(a)(2), Internal Revenue Code §108(e), Calif. Code of Civil Procedure §580(e), Calif. Revenue & Tax Code §17144.5]

The MFDRA (and conforming state bills) would extend the protection for nonrecourse debt forgiveness to recourse debts forgiven through the end of 2014. The current state bill to extend this exemption is currently under consideration, pending budgetary review.

Most mortgaged California homeowners owe nonrecourse debt. Thus they are protected from taxation on discharge-of-indebtedness income on a short sale or foreclosure underbid regardless of the MFDRA and state bill extensions. [Calif. Rev & T C §17144.5]

However, a homeowner facing an underwater property encumbered with recourse debt needs to consider whether a short sale or a foreclosure will benefit them most.

Short sales require the homeowner with recourse debt to negotiate with the lender, who needs to agree to a discount if the sale is to close. The sale price of the home is less than the money owed to the lender, meaning the discount on the debt is still forgiven – a recourse debt which, without the special tax exemptions provided by the MFDRA, qualifies as taxable income.

Without the lender’s agreement to a short sale, a homeowner may still escape recourse debt by allowing the lender to initiate foreclosure of the property through a trustee’s sale. A trustee’s sale ultimately blocks the lender from obtaining a deficiency judgment for the remainder of the recourse debt. [CCP §580d]

However, homeowners who turn to strategic default by allowing lenders to foreclose through a trustee’s sale will take a hit to their credit score. Lower credit scores may raise interest rates homeowners must pay on future mortgages, or make it more difficult for homeowners to obtain mortgages in the first place.

Homeowners with recourse debt need to prepare their finances for the next few years in advance, then take a calculated hit to their credit scores and allow the property to go to foreclosure.

Taxable income without the MFDRA

Other states not sharing California’s tax exemption laws rely on the MFDRA’s protection. Without it, federal tax codes treat mortgage forgiveness discounts as taxable income. Thus, the option of a short sale without detrimental taxes is not available on discounts in those states. Taxes on mortgage forgiveness discounts may cost homeowners of properties encumbered with recourse debt tens of thousands of dollars in “income” they never personally received – though they did receive a home on the bet it would not fall in value below the mortgage which funded its acquisition.

Many homeowners who may have escaped heavy debt burdens through short sales and foreclosures opted to stay put for fear of incurring indomitable taxes.

The further we get from the housing crisis, the less likely it is Congress and the government will continue to subsidize forgiveness for recourse debt. If you still have clients in this situation, help them choose what to do sooner rather than later.

Re: “Mortgage debt forgiveness still a taxing issue for many short sellers,” from the Los Angeles Times

Related topics:
strategic default

Posted by Amy Thomas | Aug 7, 2015 | Fair Housing, Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: Low-income housing tax credits provided by the federal government are distributed by a state housing agency to encourage local housing investors to accommodate marginalized, low-income residents. The state agency enacted plans for the fair distribution of federal tax credits in accordance with the Fair Housing Act (the Act). A state housing agency allocated these credits according to occupants’ income levels and available state funds for housing developers. The agency’s allocation of the low-income housing tax credits mainly favored inner-city areas with predominantly minority populations over suburban areas with predominantly Caucasian populations.

Claim: A nonprofit organization which helps low-income families obtain affordable housing claims the state housing agency is causing a disparate impact since the agency’s allocation of tax credits contributes to greater segregated housing by allotting more credits to inner-city areas than suburbs, leading to a concentration of low-income housing in minority neighborhoods and perpetuating segregated housing patterns in violation of the Act.

Counterclaim: The state housing agency claims it is not liable for disparate impact resulting from their allocations since it did not intend to promote segregated housing patterns and its allocation of tax credits is not motivated by race but based on government interests.

Holding: The U.S. Supreme Court holds the state housing agency is liable for creating a disparate impact and needs to alter its allocation process since, intended or not, the agency’s allocation of tax credits concentrates low-income housing in minority neighborhoods which perpetuates segregated housing patterns in violation of the Act. [Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (June 26, 2015) ___ U.S. ___]

Disparate impact, housing patterns and the federal Fair Housing Act

The issue of disparate impact is brought to light by this US Supreme Court ruling that a state housing agency is liable for inadvertently magnifying segregated housing patterns in the above 2015 case of Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.

Disparate impact is the perpetuation of segregated housing in a community caused by any agency’s actions, regardless of intent to discriminate.

The question answered by the Supreme Court’s decision is whether state agencies are liable for disparate impact under the Federal Fair Housing Act of 1968 (the Act). No explicit wording in the Act condemns agencies for unintentionally causing disparate impact; rather, the Court interpreted the Act’s provisions to include the consequences of an agency’s actions regardless of the agency’s intentions.

Unintended consequences under the Fair Housing Act

State agencies distribute federal tax credits to landlords, who are required to designate units for low-income housing in their communities. Low-income occupants – a protected class of tenants – are provided vouchers to obtain housing from landlords who receive those credits. Thus, when a state agency distributes federal tax credits unequally across a community, limiting low-income tenants to specific areas (a concept related to steering), the agency’s action creates a disparate impact.

The Court relies on two of the Act’s provisions:

• • “[It is unlawful] to refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin” [Federal Fair Housing Act §804(a)]; and

 

• “It shall be unlawful for any person or other entity whose business includes engaging in real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.” [FFHA §805(a)]

The phrase “make unavailable” is the Court’s focus in these sections. The Court determined that phrase to equivocate disparate impact by encompassing the effects of an agency’s actions regardless of intent.

Perhaps the best parallel to disparate impact is implicit discrimination, which is defined as actions which are not openly discriminatory but in fact result in discriminatory effects. Implicit discrimination may occur if a lender offers financing only to qualified buyers (a legal practice), but those qualified buyers in turn populate what becomes a community of a sole demographic – the result being segregation, balkanization, ethnic enclaves and ghettos, you name it.

Disparate impact is a slippery slope

Disparate impact cases work to oppose the perpetuation of segregated housing. However, the nebulous terminology of the Act makes disparate impact a difficult disease to diagnose in agency activities.

Victims of disparate impact – segregation by implication – are required to file a complaint with the California Bureau of Real Estate (CalBRE) for any appropriate administrative discipline on guilty licensees (brokers and agents). Thus, the CalBRE evaluates any disparate impact consequences of the licensee’s behavior on a case-by-case basis.

Diversity quotas are the main concern for dissenters of the Court’s decision. How may an agency be certain it is not imposing disparate impact on a community unless it fills a specific diversity quota? Also, housing agencies may fear the Court’s disparate impact ruling which disregards discriminatory intent will subject them to judicial action despite active efforts to assist protected groups in the greatest need of funding or housing, as occurred in the Texas case.

Litigation is another fear for housing agencies. Disparate impact opens housing agencies to liability when tenants feel slighted by the adverse segregation result of a practice proper on its face. If housing agencies are not protected under the Act when legally allocating resources which eventually produce unintended tangential consequences of continuing segregation, how are they to defend against what may potentially be mobs of victims?

Such fears may foster paranoia and drive housing agencies to double-up their defenses. This may raise the cost of funding for those who are vulnerable and in need of financial assistance — the very class of people these agencies were created to protect. However, fear of litigation is a classic response to nearly all cases that protect members of the public from corporate or government action.

Disparate impact ruling is an opportunity for expansion

Excessive litigation will not be a problem for those housing agencies willing to expand their practices equally among all sections of the community to disseminate previously neglected populations – the low-income families. Many minority buyers and tenants are perceived as high-risk due to allegedly “unstable” circumstances, like working multiple jobs to make ends meet. If housing agencies, lenders and landlords kick their preferential penchant for single-income sources, chances are perceptions of their disparate impact will dissolve on their own.

For brokers, disparate impact liability is easy to eliminate by supporting equal treatment as an enduring real estate practice. Brokers who educate their agents on Fair Housing conduct will enjoy the unhindered business of equal opportunities provided to buyers of all demographics. All buyers want is shelter, and MLS brokers and agents provide access to shelter; a perfect match without the noise of archaic societal bias. Simple practices like thinking about and asking only questions pertinent to the housing transaction at hand will minimize brokers’ risk of liability.

The Act prohibits discrimination of any kind in:

• the advertisement, sale or rental of a residential space;
• brokerage services offered or performed;
• the origination of mortgages to purchase, build, improve or repair a residence;
• purchase-assist financing; and
• real estate appraisals. [See first tuesday Fair Housing Chapter 1: The Federal Fair Housing Act]

Check your habits as an agent or broker. Confirm you are allowing an equal shot at buying or renting to all persons inquiring about satisfying their housing needs, and adjust your practice where necessary.

Disparate impact may seem like a shapeless threat, especially for licensees with deep-felt beliefs about different classes of protected individuals. But those beliefs only threaten those licensees desperate to conserve outdated social mores and perspectives, unwilling to expand their business into all demographics and enhance their potential to flourish.

Read the text of the case.

Related topics:
implicit discrimination, liability

Posted by Amy Thomas | Dec 28, 2015 | Fundamentals, Laws and Regulations, Real Estate, Your Practice | 1

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

Dubious real estate brokers are slicking their pockets in yet another way, as exposed by the Consumer Financial Protection Bureau’s (CFPB) recent bulletin.

The latest fad for California Bureau of Real Estate (CalBRE) licensed professionals, mostly employing brokers, looking to sidestep the Real Estate Settlement Procedures Act (RESPA) prohibitions is the use of marketing services agreements (MSA).

Brokers enter into MSAs with companies that provide services their buyers and sellers need to close real estate transactions involving a consumer mortgage origination, such as:

• mortgage lenders and loan brokers, known as mortgage loan originators (MLOs);
• title insurance companies;
• escrow companies;
• appraisal services;
• home warranty insurers; and
• home inspection companies.

When used lawfully, sales transaction providers use MSAs to employ third parties, generally marketing agencies, to advertise and promote their services. For example, promotional or educational events and services may be performed by a third party on behalf of a mortgage loan broker or lender or other provider so long as the third party, say a multiple listing service (MLS) broker for purposes of this RESPA avoidance scheme, is actually rendering services of equal value to the amounts paid under the MSA.

However, brokers and their agents often believe that by not asking for a referral fee, an agent is “leaving money on the table.” Thus, MSAs are created by brokerages with third-party providers to a sales transaction to drive brokerage-generated business exclusively to the provider in exchange for a referral fee. This activity is illegal under RESPA when the transaction includes the origination of a consumer mortgage.

Payment is limited to the value of the actual services provided as promotional, educational or rental activities. Specifically, the amount paid may not be received by the broker or agent in exchange for or contingent upon the broker or agent’s referral of a buyer or seller to an MLO, escrow or title insurer, or other provider in a transaction in which a consumer mortgage is originated. [12 Code of Federal Regulations §1024.14(vi)]

However, the CFPB has received an increase in complaints made by consumers, competing MLOs and other providers, and real estate professionals who are yet uncorrupted and do not take these illegal referral fees. These complaints claim MSAs are a cover entered into by providers for payment of kickbacks to real estate agents in violation of RESPA’s anti-kickback regulations. Further, a second fee for the agent’s referral of their client to a provider in expectation of some manner of payment which is not reported to the client violates CalBRE real estate law.

Lenders, MLOs, real estate licensees and title companies are among the top exploiters of MSAs as a disguised method of paying and receiving these unlawful referral fees, or kickbacks. Brokerages pass good leads on to mortgage companies and title reps for referral fees in various forms.

Kickbacks may be disguised by providers and brokers as payment in a form other than a referral fee, such as an office holiday party, catered lunch for the brokerage office or the rental of a cubby for the provider’s representative when the values involved are nowhere near the amount of the money paid to the broker.

RESPA prohibitions: How kickbacks work

Kickbacks in consumer mortgage transactions – sales with financing for a buyer-occupant of a home – have been prohibited since the inception of RESPA in 1974. However, it seems many real estate brokers and their agents are simply unable to grasp the concept of “forbidden.” They cannot break the illegal habit of juicing up the fees in a sales transaction that includes financing by a consumer mortgage in which they are receiving a fee.

RESPA specifically prohibits any kickbacks or referral fees, including gifts, special privileges or payments implicitly contingent on referrals, paid to or received by any participants in a sales transaction unless the broker receiving the payment actually performs additional services of equal value to the payment of the second fee beyond activities they were hired to perform for their seller or buyer client in the single real estate transaction. [12 United States Code §2601(b)(2)]

In plain language, any sum of money paid to a broker or their agent by a lender, title insurance company, escrow or other provider of real estate sales related services is unlawful when:

• the transaction includes the origination of a consumer mortgage at closing, usually contingent on the purchase of a home by a buyer-occupant;
• a real estate licensee receives payment for their brokerage services as a transaction agent on the sale from the seller or the buyer;
• the broker or agent refers or directs the buyer to a mortgage loan broker or lender, or the buyer or seller to other providers in the transaction such as title insurer or escrow;
• the MLO broker, lender or other provider involved is paid by the buyer or seller for the services they render to close the sales transaction; and
• the provider pays the broker (or their agent, illegally circumventing their broker) directly or indirectly a fee for the referral in the transaction.

Thus, the real estate broker or their agent is paid twice on one purchase: once lawfully as a transaction agent for negotiating a sales transaction including a federally-controlled consumer mortgage, and once unlawfully for – what exactly?

That’s right: nothing. A broker’s referral of a client to a provider is an integral part of the services a transaction agent performs for the fee on the purchase transaction. The agent who does not perform additional services beyond the referral on behalf of the provider paying the kickback fee has not earned the right to an additional fee on a sales transaction negotiated on behalf of their client.

Motivations and consequences for creating MSAs

Many brokers enter into MSAs with providers to maintain a “closed office” – a brokerage office which exclusively (and illegally) refers clients to a specific provider, such as an MLO broker, in exchange for a referral fee. Competitors of the fee-paying provider are not permitted to access agents in the office, and thus the office is closed to competitors.

By maintaining closed offices, brokerages are trying to create a second profit center arising out of one purchase transaction. Providing the aforementioned special privileges, gifts or money is explicitly forbidden by RESPA but taken illegally in the interest of creating a second profit center on a single sales transaction.

The surge in complaints to the CFPB suggests many brokers and their agents see MSAs offered by providers for referrals as an easy scapegoat for suspicious and undisclosed fees. Agents beware – violators of RESPA regulations are subject to punishment in the form of:

• up to $10,000 in fines;
• a prison sentence of up to one year; and
• liability to the buyer in an amount equal to three times the amount of the kickback fee received. [12 USC §2607(d)]

To date, the CFPB has collected $75 million in violation penalties due to the use of MSAs as disguised kickbacks. Additionally, the CFPB may prohibit violators from working in the MLO industry in any aspect for a period of five years. [See Consumer Financial Protection Bureau Bulletin 2015-05]

Even brokers who attempt to enter into MSAs adhering to RESPA guidelines to receive additional fees on a sales transaction they have negotiated are at risk for noncompliance. Brokers and their agents need to brush up on fee distribution requirements in real estate transactions to ensure every fee is accounted for as received by the broker and in payment only for the service rendered to their buyer or seller client on a single transaction – the referral being part of that service and not one entitling them to an additional fee.

Source: “CFPB provides guidance about marketing services agreements,” from the CFPB Newsroom

Related topics:
consumer financial protection bureau (cfpb), department of real estate (dre), kickbacks, real estate settlement procedures act (respa), referral fees

Posted by ft Editorial Staff | Nov 16, 2015 | Buyers and Sellers, Finance | 1

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

If you haven’t checked out the website of the Consumer Financial Protection Bureau (CFPB) lately, you and your clients are missing out on some seriously helpful — and free — information.

The CFPB provides many more services than its name suggests: in addition to “protecting consumers” from financial fraud and malpractice, it has taken preventative measures to ensure homebuyers are well-informed about the homebuying process. The educational tools available on the CFPB’s Owning a Home website mitigate the risk of homebuyers falling prey to fraudsters, or biting off more mortgage than their finances can sustainably handle.

The best part of all these tools is that they are easy to understand, for both real estate insiders and average homebuyers.

The CFPB’s Owning a Home site features the most innovative tools released by the CFPB to date. Real estate agents can use this site in two ways:

1. study it themselves to become more familiar with the new Know Before You Owe rules; or
2. forward, post or print out the CFPB’s various booklets and infographics on the homebuying process and share them with clients.

One of these valuable tools is the “Your Home Loan Toolkit.” This toolkit includes a step-by-step guide to the mortgage process and easy-to-use checklists and worksheets. Homebuyers can reference this toolkit as they go through the homebuying process, in conjunction with the steps outlined in the Owning a Home site.

Before beginning the homebuying process, a homebuyer may first visit the first stage of the CFPB’s site: Owning a home: Prepare to shop. Here, homebuyers are instructed to go through a list of necessary activities and analyze their financial motivations to prepare them for taking out the most compatible mortgage available. These simple but critical introductory activities include:

• checking their credit score;
• assessing their spending habits; and
• budgeting and pulling together the material necessary to submit mortgage applications to multiple lenders.

Next, the homebuyer visits: Owning a home: Explore loan choices. At this page, they are guided through the different types of mortgages widely available on the open market and the estimated fees and costs associated with each type of mortgage product. It also directs the homebuyer to select three or more lenders to submit their loan application to in order to find the most competitive offer and terms. [See RPI Form 312]

Next on the topic of mortgage finance, the homeowner visits: Owning a home: Compare loan offers. Here, they are instructed how to weigh the loan estimates received from each lender they contacted. This page also assists the homebuyer choose the best mortgage for their housing needs. They are instructed to get a prequalification letter from their lender of choice.

After the homebuyer has selected their lender and mortgage they would like to close on, they graduate to the last section of the page: Owning a home: Get ready to close. This section guides them through the closing process, which includes:

• scheduling a home inspection;
• shopping for homeowner’s insurance and title insurance; and
• reviewing and understanding final mortgage documents.

Real estate agents can send their homebuyer clients to each of these pages as they navigate through the intricacies of the homebuying process.

Toolkits like these are important to maintaining informed homebuyers, particularly as we emerge from the biggest housing crash in a generation. The crash was caused by numerous factors, chief among them the convergence of unrestrained banks (wolves) and over-confident homebuyers (sheep). As we move forward, lenders now need to follow new Dodd-Frank rules and consumers need to complete various checklists and in some cases counseling before they can take out a mortgage.

Still, an “information gap” remains between homebuyers and lenders, according to CFPB Director, Richard Cordray. That’s simply because lenders originate mortgages for a living and homebuyers will only take out a mortgage a few times in their lives, if that. Enter the CFPB’s many tools to rebalance this asymmetry of information.

Related topics:
consumer financial protection bureau (cfpb)

Posted by Sarah Kolvas | Feb 23, 2015 | Laws and Regulations, Real Estate | 0

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

Calif. Business and Professions Code §11506
Amended by S.B. 1243
Effective date: January 1, 2015

The sunset date for laws regarding common interest development (CID) managers has been extended from January 1, 2015 to January 1, 2019. Generally, these laws control the:

• certification and education requirements for becoming a CID manager;
• disclosures CID managers need to provide to the board of directors of a homeowners’ association (HOA); and
• prohibited business practices for CID managers.

 Read more:

Read the bill text.

Related topics:

Posted by Sarah Kolvas | Feb 23, 2015 | Laws and Regulations, Real Estate | 0

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

Calif. Business and Professions Code §149
Amended by S.B. 1243
Effective date: January 1, 2015

Unlawful advertisements

If an unlicensed person publishes an advertisement in any medium offering real estate services requiring a license, the California Bureau of Real Estate (CalBRE) may issue a citation requiring the person to:

• cease the unlawful advertising; and
• notify the telephone company providing service to the person to disconnect service to the phone number used in the unlawful advertisement.

If the violating person fails to comply, CalBRE may inform the Public Utilities Commission to require the telephone servicer to disconnect service to the phone number in the unlawful advertisement.

Read more:

Read the bill text.

Related topics:

Posted by Sarah Kolvas | Feb 23, 2015 | Laws and Regulations, Real Estate | 0

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

Calif. Business and Professions Code §101.7
Amended by S.B. 1243
Effective date: January 1, 2015

The California Bureau of Real Estate (CalBRE) is now required to provide written notice of CalBRE public meetings by e-mail, regular mail or both to anyone who requests it.

CalBRE is also required to include in the meeting notice any plans to web cast the meeting if it intends to do so.

Editor’s note — Currently, CalBRE posts all public meeting notices to their web site. CalBRE’s public meetings allow it to educate members of the real estate industry on new laws, receive feedback from real estate professionals about the current marketplace and answer questions from the public.

Read more:

Read the bill text.

Related topics:

Posted by Sarah Kolvas | Jan 5, 2015 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Business and Professions Code §480
Amended by A.B. 2396
Effective date: January 1, 2015

The California Bureau of Real Estate (CalBRE) may not deny a license to an applicant based solely on an applicant’s dismissed conviction if:

• the applicant has fulfilled all conditions for probation and received a certificate of rehabilitation; or
• the conviction has otherwise been dismissed or set aside by a court.

The applicant is to provide CalBRE with proof of dismissal.

Editor’s note — All applicants are also required to disclose all past convictions and criminal activity. For a more in-depth discussion about licensing requirements and the application process, please see the first tuesday article, Eligibility for a CalBRE salesperson license

Read more:

Read the bill text.

Related topics:

Posted by ft Editorial Staff | May 13, 2015 | Commercial, Feature Articles, Investment, Laws and Regulations, Real Estate | 0

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

Let’s play a quick word association game. The word is: zoning.

Zoning is associated with many negative aspects of the housing market, including: red tape, regulations, height restrictions, parking restrictions, stifled growth and angry neighbors. A poor, outdated zoning code can cause a multitude of problems for local housing. But zoning doesn’t always have to be a problem: zoning can be a good thing for housing growth, if it is molded with the right goals in mind.

How can zoning change make a positive difference? Consider one of the biggest problems facing California’s urban areas: a lack of multi-family housing. In the aftermath of the 2008 recession, tens of thousands of homeowners lost their homes to foreclosure and became renters.

This spike in demand coincided with the influx of new young adult renters from Generation Y (Gen Y), who have only recently left the nest and are now looking for rentals near jobs in the city.

The lack of sufficient rental housing is causing rents and home prices to shoot up beyond the rate of income growth. In turn, the homeownership rate for these urban areas continues to decline as renters pour more than their share of income into rent, cutting out potential down payment savings.

Zoning to allow more multi-family housing developments alleviates the rental crush, and frees up funds for down payment savings.

But too often, zoning is decided by vocal not in my backyard (NIMBY) advocates. These residents have a stake in keeping their neighborhood just the way it is – meaning low density. A classic example is San Francisco, with its severe building height restrictions and its impossibly high cost of living.

Fighting NIMBYism is an uphill battle. As a result, zoning change, when it happens, is a slow process.

But it is getting done. This article outlines three organizations working to make successful zoning change to better meet the demands of local residents. Each of these organizations is working to change zoning in their own way, and you can get involved, too.

San Francisco – SPUR

Source: SPUR

Location: SPUR (formerly the San Francisco Planning and Urban Research Association) has offices in San Francisco, Oakland and San Jose.

What they do: SPUR is a non-profit organization focusing on advocacy and research for city planning and governance in the Bay Area. It has existed since the 1906 San Francisco fire and has fostered a lot of change over the years, including shaping the Bay Area Rapid Transit (BART) system and several downtown and recreation areas.

Current projects include instituting laws to allow for in-law apartments, and creating Affordable-by-Design living units.

SPUR’s focus is on eight areas:

1. Community planning;
2. Disaster planning (earthquakes);
3. Economic development;
4. Good government;
5. Housing (affordability, including more multi-family housing, fewer parking requirements);
6. Regional planning (focusing on how to help their city grow, not suburban growth);
7. Sustainable development (reducing San Francisco’s ecological imprint and responding to climate change); and
8. Transportation (making public transportation accessible and affordable).

How to become involved: SPUR is a non-profit organization, funded by individual donations. The easiest way to donate is to become a member (which starts at $35/year for low-income individuals or $75 for everyone else) and in turn you get an annual subscription to their magazine, The Urbanist, and discounted or free admission to their many events.

Los Angeles – re:code LA

Source: re:code LA

Location: re:code LA operates out of the Los Angeles Department of City Planning.

What they do: This is a project of the City of Los Angeles to streamline and simplify the city’s bloated 600-page monster of a zoning code.

The current code consists of base zones such as R-1, R-2, C-1 etc., plus special overlay zones and site-specific conditions, resulting in 60% of the property in the city having at least two different types of land use controls (many with more).

Thus, a C-1 property (general commercial) will have not just the typical siting, density and design requirements of that particular zone type, but also potentially:

• a location-specific floor-area ratio (FAR) restriction;
• a district height restriction;
• an overlay zoning prohibiting additional uses otherwise allowed in the C-1 zone;
• a neighborhood-specific ordinance triggering additional public review/approval for certain uses;
• special district parking requirements; and much more.

This can make developing or improving properties an expensive, drawn-out struggle, and it chokes back the provision of needed housing units and other services.

re:code LA’s mission is to eliminate this confusion. The project aims not to change zoning designations but to flatten and consolidate the layers of regulation adhering to a particular property into one single zoning designation, with all its requirements and limitations spelled out in an intuitive and uniform way.

The re:code team has outlined the following steps to a successful rewrite of LA’s zoning code:

1. Develop an outline for the new zoning code;
2. Review and incorporate external material (neighborhood and specific plans, etc.) into the new zoning code;
3. Consolidate existing zones and their overlays into base zones;
4. Draft new zones to implement future planning (requiring public review and council action);
5. Prepare new standards that improve the quality of development; and
6. Strategically amend the zoning map (requiring public review and council action).

re:code is piloting this project in the Downtown neighborhood council district. Downtown is already densely built and contains a relatively small residential population, making change in this neighborhood less likely to run afoul of NIMBYism.

With recommendations and analysis in hand, DCP is now developing the redesigned and rewritten code for the Downtown neighborhood. DCP will release the code in the summer or fall of 2015. After that, the revised zoning code will be released in geographic chunks on a rolling basis.

How to get involved: The act of actually changing a zoning designation (rather than simplifying the layers of regulation applying to it and giving it a different name) requires both community input and Council approval. Some of re:code’s work will involve zone changes, although it is their stated goal to limit this. The need for more multilateral approval in those cases may prove difficult.

The Zoning Advisory Committee of the City Planning Commission meets monthly for updates on the process, and these meetings are open to the public. Formal public hearings and virtual and neighborhood forums are also planned. Funding comes from the DCP’s budget as approved by the LA City Council.

San Diego – San Diego Housing Federation

Source: San Diego Housing Federation

Location: Their office is located in downtown San Diego.

What they do: The San Diego Housing Federation is a non-profit advocacy organization, providing resources for low- and middle-income housing in San Diego. They recently advocated successfully for the linkage fee increase, which is basically an added fee of 1.5% of any commercial development costs, with the proceeds going towards low- and middle-income housing. The fee hadn’t been increased since 1996. It’s expected to generate $30 million over the next 20 years to the Affordable Housing Trust Fund. San Diego’s Affordable Housing Trust Fund supports new housing for low- and middle-income households, and maintains existing housing. The San Diego Housing Commission, a public housing organization, administers the Fund.

The San Diego Housing Federation also helped pass Proposition 41, which provided $600 million to help build multi-family housing and provide supportive services to low-income veterans.

How to get involved: They put on an annual affordable housing and community development conference for housing professionals, city officials and residents. Another way to get involved is by participating in one of their many roundtables that bring together local housing professionals to expand their knowledge of low- and middle-income housing in San Diego.

Here’s a sample presentation that outlines some really useful information – applicable in San Diego and the rest of the state – on federal funding for housing programs.

Zoning for long-term housing health

Less restrictive zoning is important to the long-term vitality of your housing market. Builders cannot build if they aren’t allowed to meet rising demand due to outdated regulations. The ultimate result is an unstable housing market, with rents rising well beyond the reach of current residents. The long-term impact can be disastrous for individual communities.

first tuesday will keep you informed of important zoning news in California, but getting involved at your local level is the best way to ensure positive change.

Related topics:
demand, san francisco zoning restrictions, urban living, zoning

Posted by ft Editorial Staff | Nov 30, 2015 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Civil Code § 1940.20, 4750.10
Added by A.B. 1448
Effective date: January 1, 2016

Homeowners associations (HOA) and landlords may not bar or impose unreasonable restrictions on the use of clotheslines or drying racks in an owner’s or tenant’s backyard or private area.

Balconies, railings, awnings, and other parts of the building do not qualify as clotheslines or drying racks.

A tenant using a clothesline or drying rack needs to:

• obtain the consent of the landlord;
• prevent the clothesline or drying rack from interfering with health, safety and property maintenance; and
• adhere to all reasonable time and location restrictions imposed by landlord.

Restrictions that do not significantly increase the cost of using a clothesline or drying rack are still permitted.

Read the bill text.

Related topics:
drought, homeowners association (hoa)

Posted by ft Editorial Staff | Mar 17, 2015 | New Laws, Your Practice | 1

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

Effective January 1, 2015, a new consumer notice is required of all documents requiring a notary certificate in California. The notice needs to be displayed in a box at the top of the certificate, to read:

“A Notary Public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.” [Calif. Civil Code §1189]

If your document requiring notarization does not adhere to the new requirements, there’s about a 30% chance it will be rejected by the county recorder, according to a recent survey by the Notary Bulletin.

Nearly all of the survey respondents (95%) said they have rejected documents when the consumer notice was simply missing. Other commonly reported reasons for rejection include:

• the consumer notice was in the incorrect location on the form, such as below the signature line (76%); and
• the consumer notice was floating and not anchored in a box separate from the body of the notary certificate (74%).

Less common, though still legitimate, reasons for rejection include:

• the consumer notice was illegible or impossible to read (37%);
• the consumer notice was attached to the recordable document using an adhesive label (16%); and
• the updated language of the consumer notice was manually handwritten onto the face of the document (13%).

There are 58 counties in California, and each interprets the nuances of these new requirements a little differently. Some counties are very stringent and inflexible, such as those who reject a notice that is difficult to read, while others are more accommodating. Thus, the rejection rate across California’s 58 counties is wildly divergent, with some recorders rejecting 30% of documents, and others rejecting as few as 5%.

What’s your best bet to ensure your transaction is not a causality of these new requirements? Get your forms from a trusted source. All first tuesday forms have been updated to comply with the consumer notice requirement. Common forms used in real estate transactions requiring a notary certificate include the:

• Grant Deed [See first tuesday Form 404];
• Deed-in-lieu of Foreclosure [See first tuesday Form 406];
• Request For Notice of Default and Notice of Delinquency By Junior Trust Deed Beneficiary [See first tuesday Form 412];
• Trust Deed and Assignment of Rents Securing a Promissory Note [See first tuesday Form 450]; and
• Notice of Trustee’s Sale [See first tuesday Form 474]

All 26 first tuesday forms containing the new notary certificate may be downloaded at no cost from the View and download new and updated forms tab on the Forms Download page.

Alternatively, if you’re already working on an older, noncompliant form, use the separate first tuesday Form 407, Acknowledgment By Notary Public – Notary Consumer Disclosure, and attach it to any document requiring notarization in lieu of the boilerplate notary acknowledgement. [Calif. CC §1188]

Has your county recorder rejected any of the forms you were trying to record, delaying your transaction? Share your experiences in the comments below!

Related topics:
disclosures, notary

Posted by Sarah Kolvas | Sep 1, 2015 | Laws and Regulations, Licensing and Education, Real Estate | 1

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

Read on so you know how to select a reputable and compliant CalBRE continuing education provider.

The California Bureau of Real Estate (CalBRE) recently released an advisory informing licensees the continuing education provider, The Career Compass, is no longer permitted to offer CalBRE continuing education courses. [See CalBRE Licensee Advisory, August 6, 2015]

The Career Compass violated CalBRE regulations by issuing CalBRE continuing education course completion certificates to licensees without administering final exams – a CalBRE requirement strictly enforced for all course providers. [Calif. Bureau of Real Estate Regulations §§3006(d), 3007.3]

After Career Compass’ accreditation was revoked, it partnered with an approved, third-party course provider, Gold Coast Schools, and continued to violate CalBRE regulations by:

• falsely advertising its courses may be used for CalBRE continuing education credit;
• failing to disclose the course material it offered was approved for and provided by Gold Coast;
• administering exam questions that differed from questions approved for Gold Coast’s material and providing answers before administering the exam;
• claiming that reading the course material was optional, thus failing to ensure licensees devoted the CalBRE-mandated amount of time on reviewing the course material; and
• issuing course completion certificates that named Gold Coast as the provider but were unlawfully signed by a representative from The Career Compass.

The violations resulted in an order from CalBRE for both Career Compass and Gold Coast to cease any marketing that states or implies Career Compass is qualified to provide continuing education to licensees for CalBRE credit or that Career Compass is permitted to act as an instructor for continuing education courses. Gold Coast dropped its affiliation with Career Compass.

More importantly, licensees who took courses through  The Career Compass had their continuing education courses rejected when attempting to renew with CalBRE.

Worse, a licensee who receives a course completion certificate without studying and successfully completing an exam or who falsifies information on their renewal application is also subject to disciplinary action by CalBRE. [CalBRE Bulletin, Winter 2014; Calif. Business and Professions Code §§10170.5(d), 10177(a)]

Thus, a licensee’s choice in selecting their continuing education course provider plays an important role in ensuring proper satisfaction of CalBRE renewal requirements.

Editor’s note — As a course provider, first tuesday is also subject to these CalBRE regulations and expects to be held to the same standard by licensees. We encourage licensees to select course providers carefully no matter which course provider they are considering.

Identifying valid course providers

Agents and brokers are required to complete 45 hours of continuing education every four years. To offer the required courses to real estate licensees, course providers first submit their course material to CalBRE for approval. Each approved course provider is issued a four-digit CalBRE continuing education sponsor number identifying them as an approved real estate educator.

Licensees need to look for this sponsor number on advertisements for continuing education courses and provider websites. The absence of the four-digit sponsor number is an indication the course provider is not compliant with CalBRE regulations and likely not authorized to provide courses for CalBRE continuing education credit. [CalBRE Regs. §3007.6(a)(3)]

Upon approval, course providers are subject to well-defined course administration guidelines. This includes ensuring licensees understand the course provider’s policies and continuing education requirements by providing a General Information page prior to enrollment. [CalBRE Regs. §3007(f)]

Licensees are advised to look for this page before enrolling in a course online, as failure to provide this page on the course provider’s website is a violation of CalBRE regulations.

Confirming approved course providers

Want to ensure a course provider is approved by CalBRE before signing up? CalBRE provides real estate licensees a reliable way to search for approved course providers and continuing education on their website. [See CalBRE: Approved Real Estate Education Courses]

The online continuing education search doubles as a way for licensees to both confirm a course provider has CalBRE approval to offer courses and to find approved courses for renewal with topics best suited to the licensee.

To confirm a course provider’s CalBRE approval, licensees may enter a course provider’s name or sponsor number in the search fields. This generates a full list of course offerings approved by CalBRE for that provider.

To search for approved continuing education courses, licensees may tick the check boxes for the types of courses they are seeking. The system will produce a full list of courses from all providers that meet the selected criteria.

Course materials and study time

Upon enrollment, the content and format of a continuing education course are regulated by CalBRE.

When offering a live course, a continuing education course provider needs to ensure licensees are present for at least 90% of the offering time, in addition to the time it takes to complete exams. [CalBRE Regs. §3006(b)]

A correspondence course requires course providers to supply licensees with enough course material to adequately cover 45 hours of education. Also, they are to ensure that licensees devote the required number of hours to reviewing material. [CalBRE Regs. §3006(g)]

Thus, a continuing education course that only provides online material needs to clock a licensee’s study time and reading to ensure they actually complete 45 hours of online education. When books are provided and reading cannot be timed, the course provider still needs to prevent licensees from  completing the course sooner than the amount of time CalBRE deems sufficient for the licensee to first review the material and complete quizzes before testing. [CalBRE Regs. §§3006(g), 3007.3(j)]

Noncompliant course providers attempt to bypass these regulations by allowing licensees to review online material without logging in the reading time, or permitting completion of the course before the licensee satisfies all 45 hours, including quizzes. These are some of the violations of CalBRE regulations and are grounds for:

• withdrawal of the course provider’s continuing education approval; and
• denial of a licensee’s renewal application.

Quiz and examination rules

Course providers are required to give licensees incremental assessments, i.e. quizzes, throughout the course to test the licensee’s grasp of the material. Quizzes are mandatory for all licensees. [CalBRE Regs. §3006(p)]

Licensees are then required to pass final exams to receive a valid course certificate. Course providers are only permitted to duplicate up to 10% of the questions used on the quizzes for the exams. Thus, the majority of questions on the exams are mandated to be different from the questions licensees encounter on the quizzes. [CalBRE Regs. §3007.3(l)]

CalBRE imposes stringent guidelines on continuing education course providers to ensure exams:

• are properly timed – no more than one minute per question [CalBRE Regs. §3007.3(f)];
• require a passing score of 70% or more [CalBRE Regs. §3007.3(o)];
• allow a licensee two attempts to pass with two versions of the exam and, when both are failed, require licensees to complete the course hours again [CalBRE Regs. §3007.3(k)];
• only permit a licensee to test on a maximum of fifteen hours of material in a 24-hour period [CalBRE Regs. §3007.3(c)];
• contain a state-mandated minimum number of questions, depending on the number of hours in the course [CalBRE Regs. §3007.3(d)];
• are protected to maintain the integrity of the exams by prohibiting licensees from downloading or printing the exams and automatically timing out after the maximum amount of time has lapsed [CalBRE Regs. §3007(i)]; and
• when administered by a proctor on paper, are monitored by someone who is not related to the licensee by blood, marriage, domestic partnership or other relationship (including work-related) that may influence them to deviate from proper exam administration rules, which the proctor is to certify in writing. [CalBRE Regs. §3007.3(h)]

Thus, licensees need to be aware of any course provider that fails to follow these guidelines by, for example, not administering exams or not timing the licensee’s exams.

Further, licensees who request an exam proctor for paper exams also assume an obligation to conform to CalBRE regulations by only providing a proctor who is not related to them and ensuring their proctor confirms compliance in writing.

Noncompliant course providers

When any continuing education course provider violates the regulations controlling the content of the course or exam administration, CalBRE may revoke the provider’s approval. The withdrawal is effective 30 days after a course provider receives notice of CalBRE’s withdrawal. Thereafter, real estate licensees may no longer submit to CalBRE any courses from that provider completed on or after the effective date of the withdrawal to renew a license. [CalBRE Regs. §3010]

Real estate agents and brokers need to carefully select continuing education course providers and confirm they are approved by CalBRE before enrollment. Course providers who do not properly follow CalBRE regulations put real estate licensees at risk and impact their ability to renew on time with valid continuing education.

Agents and brokers who come across continuing education courses that violate CalBRE regulations may report the course provider by filing a complaint with CalBRE, submitted along with supporting documents. [See CalBRE Form 340: Education Provider Complaint]

CalBRE will investigate the course provider’s continuing education and activities, and later conduct a disciplinary hearing if they discover any violations.

Have you encountered noncompliant and disreputable continuing education course providers? Has your renewal ever been compromised by a course provider that violated CalBRE regulations? Let us know in the comments.

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

Posted by Whitney Trang | Aug 3, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A property owner dies. The property owner’s will grants their spouse a life estate with a power of sale in their separate property, providing the spouse the right to occupy the property for the duration of the spouse’s lifetime. Under the terms of the will, the spouse may sell the property and divide the sale proceeds between the spouse and their two children. Further, if the spouse dies and has not sold the property, it passes to the children. The spouse obtains a mortgage secured by a trust deed on the property. The spouse later dies and the mortgage goes into default. The lender files a Notice of Default (NOD) and attempts to foreclose on the property.

Claim: The property owner’s children seek to cancel the trust deed and quiet title to the property, claiming the lender has no claim to the property after the spouse’s death since the spouse only had a life estate which does not confer ownership of the property.

Counterclaim: The lender seeks to foreclose on the property, claiming the spouse was given fee ownership of the property since they had the ability to sell it.

Holding: A California court of appeals holds the lender may not foreclose on the property and the property owner’s children hold fee ownership of the property free from the lender’s lien since the spouse’s power of sale did not translate into fee ownership of the property and thus upon the spouse’s death the lender is unable to enforce the trust deed. [Peterson v. Wells Fargo Bank, N.A. (May 8, 2015) ___ CA4th ___]

Read the text of the case.

 

Related topics:
life estate, fee ownership, separate property, notice of default (nod)

Posted by Whitney Trang | Aug 21, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: The adult child of a commercial property owner forges the owner’s name and obtains a mortgage secured by a trust deed on the property without the owner’s knowledge. The adult child defaults on the mortgage and the property owner receives a Notice of Default (NOD). The owner enters into a forbearance agreement with the lender and agrees to a repayment plan. More than three years after receiving the NOD, the property owner files a quiet title action, but is denied due to the three-year statute of limitations (SOL).

Claim: The property owner seeks cancellation of the trust deed lien by quiet title action, claiming the lien is fraudulent and their quiet title action is not subject to the SOL since the SOL only applies to disputed or disturbed possession, and their possession of the property was not disturbed by the NOD.

Counterclaim: The lender claims the owner may not pursue quiet title action since delivery of the NOD disturbed the owner’s possession of the property and triggered the SOL, which expired before the owner filed the quiet title action.

Holding: A California court of appeals holds the owner’s quiet title action is not barred by the SOL and cancels the forged trust deed lien since an NOD does not dispute or disturb an owner’s possession of property and thus, does not trigger the SOL. [Salazar v Thomas (May 1, 2015) ______ CA4th ______]

Read the text of the case.

Related topics:
notice of default (nod), statute of limitations, quiet title action, commercial real estate, trust deed, forgery

Posted by Whitney Trang | Aug 13, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 1

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

Facts: A property owner’s neighbor places portable patio furniture on a portion of the owner’s property, believing the portion of property is their own. The owner, aware of the neighbor’s encroachment, allows the neighbor to continue using the land without restrictions. More than three years later, the owner sells their property to a new owner. The new owner is unable to use the portion of their property blocked by the furniture, creating a hardship for them.

Claim: The new owner seeks the removal of the neighbor’s patio furniture, claiming the new owner faces undue hardship and is unable to use their land since the neighbor blocked the new owner’s use with the patio furniture.

Counterclaim: The neighbor seeks an equitable easement over the new owner’s land, claiming they do not have to remove the patio furniture since it is a greater hardship for the neighbor to remove the furniture and they have been using the property for more than three years.

Holding: A California court of appeals holds the neighbor is not entitled to an equitable easement over the new owner’s property and needs to remove the furniture since the hardship experienced by the neighbor to remove their patio furniture from the new owner’s land is not greater than the new owner’s hardship of not being able to use their land. [Shoen v. Zacarias (May 22, 2015) _____CA4th_____]

Read the text of the case.

Related topics:
easement, property dispute, neighbor, balancing equities, balancing hardships, encroachment

Posted by Carrie B. Reyes | Nov 23, 2015 | Buyers and Sellers, Fair Housing, Laws and Regulations, Real Estate | 0

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

Some facts about the housing market:

• homeowners have more wealth than non-homeowners; and
• white (non-Hispanic) households have a higher homeownership rate than non-white households.

Therefore, it’s no surprise that non-white households have less wealth than white households. In fact, a recent Zillow analysis reports the average white family’s wealth equals $114,785 as of 2011. The average black family’s wealth equals a fraction of that, just $24,792. Using this data, Zillow found that if black families became homeowners at the same rate as white families, their average wealth would rise to $32,871.

In 2011, the homeownership rate for white households was 72%, compared with a 52% homeownership rate for black households. Zillow claims that six percentage points of the 20 separating the two rates can be accounted for by socioeconomic factors (i.e. the average income of black households is less than white households). This still leaves a homeownership gap of 14 percentage points, unexplained by income, savings or household characteristics.

So aside from socioeconomic factors, what can account for the difference in homeownership between racial groups?

The sad fact is, a large, highly documented system of housing discrimination exists, keeping homeownership rates low for racial minorities, particularly black and Hispanic families. Discrimination comes from three sides in the process of buying and keeping a home:

• intentional mortgage discrimination;
• implicit (and sometimes explicit) discrimination from real estate professionals; and
• a higher likelihood of default and foreclosure.

The many forms of discrimination

In 2012, Bank of America and Countrywide agreed to pay $335 million in response to discriminatory mortgage lending, which adversely affected 200,000 people nationwide.

While certainly not the first instance of mortgage discrimination, this was the largest proven act of racial discrimination in the mortgage industry. Countrywide charged minority families higher fees and steered them into subprime mortgages, even though minority homebuyers’ credit histories were similar to the credit histories of white applicants. As a result, many of these homebuyers eventually defaulted and lost their homes to foreclosure following the 2008 recession.

Beyond mortgage discrimination, real estate professionals act out a more insidious form of racial discrimination. According to a decades-long study by the Department of Housing and Urban Development (HUD), implicit racial discrimination ensures minority homebuyers (and renters) are:

• shown fewer properties; and
• given less information by real estate agents.

Explicit racial discrimination still exists in the real estate profession, though less so today. In these more rare cases, real estate agents refuse outright to show properties or take applications from racial minority groups.

Finally, black homeowners (and likely other racial minorities) are more likely than White homeowners to lose their home during a recession.

Aside from being steered into bad mortgage deals, as cited in the Bank of America/Countrywide case, black homeowners are statistically more likely to lose their job during a recession. When this happens, black workers often have less money set aside in savings to tide them over until they can find another job (partly due to black and other racial minority workers having lower average incomes than white workers to start, even when working in the same field). Therefore, black homeowners are often the first to lose their homes during a recession — 45% more likely than white homeowners in fact, according to a Cornell University Study, as cited in Slate.

For instance, due to the 2008 recession, the average wealth of black households fell by half. The average homeownership rate in 2014 was:

• 71% for White non-Hispanic households;
• 41% for Black households;
• 45% for Hispanic or Latino households; and
• 58% for Asian-American households, according to the U.S. Census Bureau.

All of this discrimination contributes to negative housing attitudes on behalf of members of racial minority groups.

Real estate agents can make a difference

While the relatively low homeownership rate for racial minorities is partly due to socioeconomic circumstances and homeownership attitudes, the Zillow analysis shows most of it is due to outside influences, such as housing discrimination. Therefore, the homeownership rates of racial minorities really ought to be higher than they are presently.

In turn, the housing market has the opportunity to benefit from more qualified homebuyers encouraged to enter the market. The potential benefits are seen across California, as lower homeownership rates exist in areas with higher racial minority populations. But what can real estate professionals do to encourage more households to become homeowners?

While real estate agents can’t do a thing about the third aspect of housing discrimination (what happens during a recession), they can be watchful of their own actions, and that of lenders.

For all clients, real estate agents need to be vigilant for signs of predatory lending. Agents can make sure all clients are fully aware of the details of the mortgage they are agreeing to pay back. After all, most homebuyers will only participate in the mortgage process a handful of times in their lifetime at most, and they need guidance to make sure they aren’t taken advantage of by a predatory lender. The Consumer Financial Protection Bureau’s (CFPB’s) mortgage shopping tools are a good place to direct homebuyers for homebuying and mortgage guidance.

Finally, real estate professionals need to maintain high anti-discrimination standards by following the laws set out in California’s Unruh Civil Rights Act. To ensure brokers, agents, mortgage loan originators (MLOs) and landlords don’t violate non-discrimination laws — even unintentionally — professionals need to:

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

Related topics:
california homeownership, discrimination, real estate demographics

Posted by Sarah Kolvas | Nov 16, 2015 | Laws and Regulations, Property Management, Real Estate, Recent Case Decisions | 0

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

Rancho de Calistoga v. City of Calistoga

Facts: A mobile home park is subject to a local rent control ordinance that limits annual rent increases. The ordinance also permits the owner to petition the city for approval of higher rent increases to ensure a reasonable rate of return on their property. The mobile home park owner proposes to raise rents by an amount they deem reasonable yet exceeding the limit imposed by the ordinance. The city rejects the full increase but permits a lesser increase to the rent amount.

Claim: The owner seeks to enforce their proposed rental rate increase, claiming the rent control ordinance constitutes a regulatory and private taking under the Fifth Amendment since the city’s rent control ordinance provides financial benefit to tenants and deprives the owner of rental income.

Counter claim: The city claims the rent control ordinance is not a regulatory or private taking as the city is permitted to impose reasonable housing regulations and limit rent amounts without providing compensation for any resulting economic injuries to an owner.

Holding: A California court of appeals holds the city’s rent control ordinance is not a regulatory or private taking since a reduction in the rental value of the property does not constitute a taking and the city is permitted to create reasonable rent limits to adjust economic benefits and burdens with no requirement to compensate the owner for the resulting injuries. [Rancho de Calistoga v. City of Calistoga _CA4th_]

Read text case.

Related topics:
landlord, rent control, tenant

Posted by Marissa Morton | May 5, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A property owner accesses their property they use for private recreational purposes through a road that crosses property belonging to a neighbor. The property owner has used the road crossing the neighbor’s property to access their property continuously and openly for more than five years. The neighbor eventually blocks access to the road.

Claim: The property owner seeks to continue using the road, claiming they own a private prescriptive easement over the road for the purpose of accessing their property since they have used the road continuously and openly for more than five years, thus the neighbor has no right to block access to the road.

Counterclaim: The neighbor seeks to block access to the road claiming the adjoining property owner does not own a prescriptive easement through their property and, thus, has no right to use the road since the public’s use of private property for recreational purposes may not become a permanent right.

Holding: A California court of appeals holds the property owner established a private prescriptive easement since they used the road continuously and openly for more than five years to access their property and did not use the road for recreational purposes. [Pulido v. Pereira (2015) 234 CA4th 1246]

 Read the case text.

Related topics:
easements, prescriptive easement

Posted by Marissa Morton | Jun 17, 2015 | Buyers and Sellers, Laws and Regulations, Property Management, Real Estate, Recent Case Decisions | 0

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

Facts: A commercial landlord enters into a 60-year lease agreement with a tenant that includes an option to purchase the property during their 30th year of tenancy. In the 30th year of their tenancy, the tenant and landlord agree to extend the lease term an additional 15 years, resulting in 45 years remaining on the lease. Soon after, the landlord sells the property to the tenant. The county reassesses the property due to a change of ownership and the tenant pays the property taxes.

Claim: The tenant seeks a refund for paid property taxes claiming there is no reassessable change of ownership since a tax code exemption precludes reassessment if the property is encumbered by a long-term lease with at least 35 years remaining at the time of transfer.

Counter-claim: The county claims the property is subject to reassessment since the landlord and tenant purposefully avoided reassessment by extending the remaining lease term beyond 35 years before the transfer and thus, the tax code exemption does not apply.

Holding: A California court of appeals holds the sale of the property subsequent to the lease term extension does not trigger a change of ownership subject to reassessment since the property was encumbered by a long-term lease with at least 35 years remaining, thereby meeting the requirements of the tax code exemption and entitling tenant to their refund of property taxes. [Dyanlyn Two v. County of Orange (2015) 234 CA4th 800]

 

Read the case text.

Related topics:
lease agreement, reassessment

Posted by Whitney Trang | Oct 12, 2015 | Laws and Regulations, New Laws, Property Management, Real Estate | 0

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

Calif. Civil Code §4735

Amended by AB 349

Effective date: September 4, 2015

During government-declared drought emergencies, common interest developments (CIDs) may not prohibit an owner of an individual CID unit from installing artificial turf or synthetic grass on their individual unit.

CIDs are also barred from requiring an owner of an individual CID unit to remove any water-efficient landscaping after the drought emergency has concluded.

Read bill text.

Related topics:
artificial turf, common interest development guidelines, drought, drought-friendly, synthetic grass, ab 349, calif civil code §4735

Posted by Sarah Kolvas | Jan 6, 2015 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Civil Code §§1633.3 and 1942.2; Government Code §60371
Amended by A.B. 2747
Effective date: January 1, 2015

Electronic transactions

Residential rental or lease agreements that include security deposit provisions may now be signed electronically.

Utility payments

On single family residences, a local state agency providing utility service is now required to send written notice of a default on the utility account to:

• the customer of record on the account, i.e., the landlord; and
• the actual utility user, i.e., the tenant.

The written notice is to notify the recipients in English, Spanish, Chinese, Tagalog, Vietnamese and Korean that service will terminate in ten days. The notice further gives the tenant the ability to prevent a termination of service by assuming financial responsibility for the utility account. The tenant may deduct the subsequent utility payments from their rent if their rental payments include charges for utilities.

Read more:

Read the bill text.

Related topics:

Posted by Matthew Taylor | Jan 20, 2015 | Commercial, Feature Articles, Investment, Laws and Regulations, Real Estate, Your Practice | 3

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

Commercial brokers: We’re now over a year into the rollout of the Nonresidential Building Energy Use Disclosure Program. Read on for Part I of this series on the energy disclosure requirement to keep your clients compliant with energy benchmarking requirements to help them avoid money claims based on deceit, or worse, cancelled transactions.

Electricity, gas and other utility bills represent a meaningful portion of a property’s operating cost — up to 20% of the rent amount. Commercial property owners and their agents are required to disclose energy costs to buyers, tenants and mortgage lenders before entering into a binding agreement — a disclosure not yet mandated for home sellers.

The energy disclosure program was developed by the California Energy Commission to implement 2007’s Assembly Bill 1103. The program exists to incentivize property owners to improve their commercial buildings’ energy efficiency. Commercial buildings consume 36% of all electricity consumed in the state, according to a report from the Senate Energy, Utilities and Communications Committee. [20 Calif. Code of Regulations §§1680-1684]

Scope of the mandate

Disclosing energy use information is the responsibility of the property owner (or manager), and in turn their real estate broker as a duty of care owed the owner. The role of the owner’s broker is to guide the owner through collecting required information and delivering the energy report within the statutory timeline.

The energy disclosure scheme:

• establishes a system that provides energy consumption data for all commercial buildings;
• enables owners to evaluate their building’s energy performance with similarly situated buildings, called benchmarking;
• enables owners to monitor energy costs; and
• encourages owners to make energy-efficient improvements.

Editor’s note — For consistency’s sake, we refer to nonresidential properties as “commercial,” though the disclosure mandate applies to more than just strictly commercial properties, including churches, hospitals, etc., but does not apply to residential property.

Commercial property owners are required, and their agents duty-bound, to disclose their property’s energy usage to:

• prospective buyers, at least 24 hours before accepting or countering a written proposal to enter into a purchase agreement [20 CCR §1681(k)];
• prospective and existing tenants negotiating to enter into or renew a lease for an entire building (single tenant property), at least 24 hours before accepting or countering a written proposal to enter into a lease agreement [20 CCR §1681(l)]; and
• mortgage lenders  at the time a loan application is submitted for financing to encumber the entire parcel. [20 CCR §1681(m); 20 CCR §1683(a)]

The leasing of space in multi-tenant commercial buildings does not trigger the disclosure of energy information since tenants occupy or will occupy only a portion, not all of the building. The sale of a multi-tenant commercial building does trigger the disclosures.

Compliance schedule and building types

These disclosures are part of a fast-evolving, more transparent era for commercial property brokerage in California. Coupled with the commercial agency law disclosure requirement effective January 1, 2015, state lawmakers have affirmed that the duties well understood in residential transactions apply fully and unequivocally to commercial transactions. [Calif. Civil Code §2079.13]

Related article: Agency law disclosure required for required for nonresidential property transactions

Expanded agency disclosures: the trade union balks at transparency

The energy-reporting disclosures are being implemented in phases based on interior building size, or gross floor area (GFA):

• September 1, 2013 for buildings with a total GFA of more than 50,000 square feet;
• January 1, 2014 for buildings with a total GFA of 10,001-50,000 square feet; and
• July 1, 2016 for buildings with a total GFA of 5,000-10,000 square feet. [20 CCR §1682]

Editor’s note — The original compliance date for buildings with GFAs under 10,000 square feet was July 1, 2014. However, in September 2014, the state legislature gave small commercial building owners an additional two years to prepare for the new requirements. [CEC, Amendment to 20 CCR §1682(c), August 11 2014]

As a result, energy disclosures are already available for buildings with a total GFA of 5,000-10,000 square feet. Risk management principles suggest the disclosures be made on these smaller properties, especially if a sale is involved.

Owners of commercial buildings of less than 5,000 square feet GFA are exempt from the energy benchmarking and disclosure mandates.

The total GFA is the floor area within the inside perimeter of the exterior walls of the building, called the building envelope. GFA is generally equivalent to usable footage. This includes interior corridors, stairways, closets, the thickness of interior walls, mezzanines, lofts and other features — any space which is fully enclosed by the building’s exterior walls and roof. The GFA does not include open shafts or interior courts without a solid roof enclosing the area. [24 CCR §1002.1]

In practice, the GFA requirement will have a standardizing effect on the inconsistent measurement of commercial square footage — the issue of lost square footage discovered after closing. Thus, sellers and brokers beware: the GFA used to calculate energy consumption reports reveals any puffing of dimensions – deceit – used in marketing and setting rent amounts.

Commercial buildings subject to compliance include buildings of the following occupancy types:

• Assembly (A);
• Business (B);
• Education (E);
• Institutional – Assisted Living (I-1, R-1);
• Institutional – Nonambulatory (I-2) (hospitals);
• Mercantile (M);
• Residential – Transient (R-1) (for example, a hotel);
• Storage (S); and
• Utility – Parking Garage (U). [20 CCR §§1681(i), 1682; 24 CCR §302.1]

A property’s occupancy type is found on the building occupancy permit.

Residential (single- and multifamily housing), industrial uses and mixed-use properties (containing both residential and commercial uses) are not covered by the energy reporting mandates. [CEC Nonresidential Building Energy Use Disclosure Program FAQ]

However, warehouses and logistics facilities, though commonly called industrial property, are classified as occupancy type S (Storage) under the California Building Code. Thus, warehouses and logistics facilities are subject to the energy benchmarking and disclosure mandates. [24 CCR §311]

Residential rumors

Commercial property owners aren’t the only ones who stand to benefit from a fuller understanding of their property’s energy consumption patterns.

Portfolio Manager is also capable of benchmarking and rating multifamily residential properties. A rating for an apartment serves as a first step for the owner or manager to improve the energy efficiency of the property — and thus the marketability of the units. Large utilities have designed consumption data aggregation policies, useful particularly in multifamily residential situations where residential tenants may be less than eager to dig up and hand over their utility bills.

Similar tools are also available to single family homeowners. Home energy rating system (HERS) audits serve as a complement to an agent’s marketing package for particularly efficient homes. The information is also required when qualifying prospective buyers for an FHA energy efficient mortgage (EEM).

Additionally, Energy Star offers a residential version of Portfolio Manager called the Home Energy Yardstick. The yardstick helps owners target capital upgrades to reduce the carrying costs of homeownership.

For new commercial and residential construction and alterations, the CEC maintains energy efficiency standards, administered through local building codes. The CEC updates the standards periodically, with the most recent updates in 2013; new regulations for 2016 are in development now. [24 CCR §§10-101 et seq.]

In some way the Nonresidential Building Energy Use Disclosure program closes a loop left open by energy-efficient construction standards. While the commercial disclosure rules—unlike the efficient building codes—don’t actually mandate efficiency improvements, they make the opportunity for improvement known to owners, buyers and tenants.

Mandated disclosures

The procedure for measuring and disclosing a commercial property’s energy use to prospective buyers, tenants and lenders is readily available to owners and their agents through an online service called Portfolio Manager. Portfolio Manager produces an energy use disclosure called a Data Verification Checklist (DVC), available at the owner’s request.

The DVC is the primary reporting document owners and their brokers use to make energy disclosures to buyers, tenants and lenders in compliance with the Nonresidential Building Energy Use Disclosure Program. [20 CCR §§1681(b), §1683(a); 20 CCR APPENDIX A]

The DVC is easily comprehensible and functional. It describes the consumption patterns of all spaces within the building envelope. The DVC creates a vivid picture of energy operating costs for the prospective user from the outset of negotiations. All of the following building information is summarized on the document:

• property name and address;
• date of checklist creation;
• owner and primary contact name, telephone number and email address;
• ENERGY STAR® Performance Score, if available;
• primary property function (such as office);
• GFA;
• year built;
• occupancy and energy consumption characteristics for the whole property and each separate use within the property; and
• data summarizing total building energy consumption as well as usage data for each individual energy type (electric, gas, etc.).

The form has a provision for a licensed architect or engineer to certify the accuracy of the data; however, professional third-party evaluation is not mandatory. [20 CCR §1681(f)(n); 20 CCR APPENDIX A; see a sample Data Verification Checklist]

Supplementary energy reporting forms are also available. They may be downloaded and added to the marketing package, but are not yet mandated for use. These include:

• the Statement of Energy Performance; and
• the ENERGY STAR® Scorecard.

These supplemental documents may enhance the value of a property for others.  An agent uses them to promote a building’s exemplary energy efficiency. All documents are available through the Energy Star Portfolio Manager website, https://portfoliomanager.energystar.gov. [20 CCR §1681(j)]

Unlike other property disclosures, however, the commercial property owner or broker does not fill out the DVC. This approach to the preparation of energy disclosures avoids omissions by owners and agents who might — deceitfully or negligently — omit information, such as occurs in the preparation of condition of property disclosures (TDS) and square footage estimates.

Instead, utilities and other energy service providers (e.g., solar energy providers) make energy use data for commercial properties available upon the owner’s request through the Portfolio Manager.

Content and timing of the disclosure

A DVC needs to be current when handed to the prospective buyer, tenant or lender. Each DVC expires 30 days after the Portfolio Manager creates it, not from the date downloaded for use.

The property owner or their broker also electronically submits a copy of the DVC to the CEC within 30 days of its creation. The owner may email a copy to AB1103@energy.ca.gov. [20 CCR §1684(a)-(d)]

To create and disclose the DVC, commercial property owners or their agent first register for a Portfolio Manager account. Although the DVC will be available for download immediately, it will not be valid for the purpose of making energy use disclosures until the Portfolio Manager account has been active for 30 days.

Editor’s note — Anyone may use Portfolio Manager to create an account, benchmark a building and generate a DVC regardless of whether the account has existed for at least 30 days. For the purposes of energy disclosures in California, however, the CEC requires 30 days to pass between account registration and DVC creation to allow energy providers time to comply with requests for data from Portfolio Manager users. Thus, a DVC created fewer than 30 days after an account is created does not meet California’s commercial building energy disclosure requirement. [20 CCR §§1684(a)]

Consider a commercial property owner and prospective buyer who intend to enter into a purchase agreement. The owner who has not yet created a Portfolio Manager account needs to:

• activate a Portfolio Manager account;
• wait 30 days to download a valid DVC;
• download the DVC and hand it to the buyer; and
• wait 24 hours after the DVC is delivered to the buyer before entering into a binding purchase agreement.

As a matter of best practice, the property owner and their broker create a Portfolio Manager account, complete the property profile and request data from energy providers immediately upon entering into a listing agreement. As always, it is best to have the DVC before marketing the property to locate a buyer or tenant.

When the broker locates a buyer or tenant who submits a written proposal the owner wants to accept or counter, the DVC needs to be immediately available to hand to the buyer or tenant. This starts the minimum 24-hour time period before acceptance.

Once the Portfolio Manager account is established, the owner and broker need to maintain the DVC at least every 30 days, until the owner has entered into a binding agreement to sell or lease or submitted a mortgage application.

No delay is experienced if a commercial property owner has already had a Portfolio Manager account open for more than 30 days when the property is put on the market for sale, lease or refinancing. The agent or owner is able simply to log in, update, download and hand the DVC to prospective buyers, tenants and lenders at a moment’s notice — at the very least 24 hours prior to entering into an agreement, as mandated, to permit the tenant or buyer to review the data before setting the price in a proposal.

The 30-day energy disclosure window

Energy use and consumption reports are to be submitted to prospective users as early in the negotiation process as practicable. In commercial deals, the disclosure is best provided in response to a Letter of Intent (LOI) which marks the beginning of written negotiations leading to an acceptance and agreement. Energy use, utility bills and their effect on a property’s operating costs are fundamental to a buyer or tenant’s determination of a commercial property’s value. [See first tuesday Form 185]

However, the 30-day shelf life of the DVC presents a quandary for owners and brokers. Negotiations may run past the 30-day life of the DVC. When the DVC expires before the owner and prospective buyer, tenant or lender enter into a binding agreement to sell or lease, the owner or broker needs to update the property profile, download a refreshed DVC and attach it to further written negotiations and the final agreement.

Editor’s note — Uncertainty remains as to whether a DVC needs to be valid at the time the agreement is entered into, or simply when it is delivered to the prospective buyer, tenant or lender. first tuesday has reached out to the CEC for comment and will update this writing when clarification is provided.

No further energy disclosures are required after a current DVC is attached to the binding agreement to sell or lease, or is in the possession of a prospective lender. Final documentation and closing may take place without further DVC disclosures.

Editor’s note — For a detailed look at how to use Portfolio Manager to gather energy usage data and create the DVC disclosure document, see the forthcoming Part II of this series, “Unlocking commercial energy disclosures with Portfolio Manager.”

The role of the agent

At this stage of the energy reporting and disclosure program rollout, compliance is inconsistent and enforcement remains lax — a condition commercial agents and owners are reportedly exploiting.

Here, the broker plays a critical role — for both the owners and the users. Owner’s agents uniquely positioned to advise owners on the proper disclosures and when to make them. Likewise, agents representing users are in a position to affirmatively advise their tenants and buyers to absolutely insist on the energy usage reports the owners is obligated to hand them.

Agents who foster healthy benchmarking habits ensure their owners are compliant and prevent 11^th-hour scrambles to untimely attempt to comply. An agent’s expertise in energy reporting compliance becomes part of the agent’s brand and allows them stand out from their peers.

Statutory penalties for noncompliance

The commercial broker’s primary role in the energy reporting and disclosure process is ensuring compliance with the requirements by:

• assisting the owner with gathering required data and information;
• helping to navigate the use of Portfolio Manager; and
• ensuring timely reporting of required energy use data, as well as timely receipt and delivery of the reports.

The CEC has the authority to enforce these regulations. When a tenant or buyer files a complaint for an owner’s failure to comply, the CEC will investigate and respond within a 30-day review period.

The CEC may initiate civil court proceedings to enforce compliance by court order or an injunction. Alternatively, the CEC may require the parties to the complaint to enter into a negotiated settlement. Noncompliant owners are subject to civil penalties up to $2,000. [CEC Nonresidential Building Energy Use Disclosure Program FAQ; Calif. Public Resources Code §25321]

Unclear effects on the right to cancel

Despite civil penalties and investigative procedures set forth by the CEC, the statute is silent on the issue of liability when an owner and their agent fail, through negligence or deceit, to provide the DVC as mandated.

Disputes will inevitably arise for failure to disclose energy reports. However, just as inevitably, judges will find ways to make owners (and thus brokers) wish they had complied. There will be litigation over whether the user can:

• delay closing a transaction until the disclosures are made;
• cancel for failure to timely disclose; or
• close the transaction and recover money (or close on a reduction in price or rent) for the cost of undisclosed energy inefficiencies.

Case law will eventually settle these issues, but not before the CEC has had a run at managing the regulations and enforcing compliance.

Operating costs—including utility bills, pegged to the building’s efficiency and consumption patterns — are well within the realm of material facts, conditions affecting the decisions of prospective buyers, tenants and mortgage lenders about a property. [Calif. Pub. Resources Code §25402.10(e)]

Stay tuned for the second installment of this series, Part II: Unlocking commercial energy disclosures with Portfolio Manager.

Related topics:
commercial property, disclosures, energy efficiency, nonresidential building energy use disclosure program

Posted by ft Editorial Staff | Feb 24, 2015 | Buyers and Sellers, FARM Letters, Feature Articles, Real Estate | 0

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

Use this first tuesday FARM Letter in your marketing. To request a FARM letter topic, or to see a list of all our FARM letter templates, visit our FARM Letter page.

Download the Personalization Instructions Download the PDF Template Download the Microsoft Word Template

Text only

Ready to free up some storage and find a home for your old clutter? Follow these simple steps:

1. Take inventory. Comb through your garage and interior storage spaces for items you’re ready to part with. Sell items you haven’t used in the past year, or a specific percentage of items from each category you own (e.g. 20% of all clothing, movies, books, etc.).
2. Assess your merchandise. Examine your belongings for cracks, broken pieces and sharp edges to ensure they are safe to sell. Make your merchandise more presentable by quickly cleaning off any dust, dirt or other stains.
3. Price to sell. Browse your neighborhood beforehand to assess your local yard sale marketplace. Adjust your prices to the general price range in your area for a competitive edge.
4. Follow the rules. Yard sale regulations vary by city – some require permits, others limit yard sales to certain dates. Check out your local ordinance for any permit requirements, scheduling guidelines and advertisement restrictions to plan your sale appropriately.
5. Time it right. Saturday mornings and early afternoons offer people more free time to shop. The beginning of the month may also yield additional customers with cash to spend as many are paid on the 1st of the month. Beware of holidays when neighbors are more likely to vacation.
6. Get the word out. If permitted, post signs on your neighborhood street corners and the nearest busy intersection. Design your ads with large, clear letters and bright colors for proper visibility. You may also post an online advertisement on websites like Craigslist.
7. Organize your display. Position larger items at the front and arrange all items by type or use for easy browsing. Remove items you do not want to sell to a hidden place for the duration of your sale.
8. Label and bundle. Add clear, visible price tags to all merchandise. Smaller and like-kind items may be packaged together to sell more quickly.
9. Carry change. Be prepared for handling money. Keep extra cash and coins on hand to speed up your transactions.
10. Make it free. Create a section for items you’re willing to give away for free. This attracts more people to your sale and increases the chances of them buying something from the “for sale” sections.

Thinking about selling your house? Call me to make an appointment!

Related topics:
agent advice, organization, real estate marketing, selling, maintenance

Posted by ft Editorial Staff | Feb 16, 2015 | Buyers and Sellers, FARM Letters, Feature Articles, Real Estate | 0

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

Use this first tuesday FARM Letter in your marketing. To request a FARM letter topic, or to see a list of all our FARM letter templates, visit our FARM Letter page.

Download the Personalization Instructions Download the PDF Template Download the Microsoft Word Template

Text only

Your credit score is an important benchmark for mortgage lenders, landlords and even potential employers. Use these tips to avoid hurting your credit score:

1. Don’t max out your credit cards.
A big factor in your credit score is your debt-to-credit ratio. When you hit your spending limit, your debt-to-credit ratio rises and your credit score falls. As a rule, always have more credit available than outstanding debt. Doing so not only boosts your credit score, it keeps your payments low and leaves a buffer for emergencies.

2. Consider the pros and cons of cancelling credit cards.
While removing temptation is one way to check excessive spending, cancelling credit can actually damage your credit score. Why? Cancelling credit increases your debt-to-credit ratio just like maxing out a card, dropping your credit score. If you need to cancel a credit card, obtaining the same or higher amount of credit with a new card diminishes the effect.

3. Stop applying for store credit cards in the checkout line.
It might be tempting to save 15% on a one-time purchase, but applying for unnecessary credit can seriously damage your credit score. Lenders make a hard inquiry whenever you apply for a new card. This type of inquiry often lowers your credit score by several points, which accumulates when applying for multiple cards. A soft inquiry occurs when you check your own credit, which is highly encouraged routinely and before a major purchase.

4. Apply with multiple lenders when shopping for a mortgage.
When you apply for a mortgage, the lender performs a hard inquiry. This will lower your credit score by a very small amount, around 5 points. However, when multiple mortgage lenders run your credit within a 45-day period, it only generates a single credit penalty. Thus, applying at one, two or even a dozen mortgage lenders only produces one minimal deduction to your credit score.

Applying at multiple lenders ensures you get the best mortgage rate and terms, just like shopping around for a new car. If you want to learn more or discuss your home buying or selling options, contact me.

Related topics:
credit score, real estate marketing, economy

Posted by ft Editorial Staff | Jan 13, 2015 | Buyers and Sellers, FARM Letters, Real Estate | 0

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

Use this first tuesday FARM Letter in your marketing. For a list of all our FARM letter templates and copy, visit our FARM Letter page. Have a topic you’d like us to write about?

Download the Personalization Instructions Download the PDF Template Download the Microsoft Word Template

Text only

DO:

Kick the clutter
Set a goal of eliminating half the items in every room, starting with personal effects like photos and clothing. You want prospective buyers to envision themselves in the home — not you and all your stuff.

Clean, clean, clean
Scuffed hardwood, grimy tile and grungy windows will create a bad impression, and fast. Break out the mop and buckets, and be sure to focus on high traffic areas — or spring for a professional deep cleaning to really wow buyers.

Use what you’ve got
Staging is temporary, so highlight the home’s best features using décor you already have. With clutter gone, rearrange furniture, switch up drapes or artwork and dress up dowdy spaces with fresh flowers from the yard.

Get creative!
Try grouping that mismatched living room set, put that armchair in the master bedroom, hang wall art on the patio fence, give that unusual centerpiece a shot — unconventional touches convey taste and make your home memorable.

DON’T:

Leave spaces empty
Give each room a purpose. Spare bedroom, unused bonus room or empty basement? Set it up as a crafting room, home office, playroom or yoga studio. Potential buyers will be able to envision the endless possibilities of the space.

Be too bold
While creativity is essential, moderation is key. Brash color schemes, excessive décor or ostentatious artwork take the focus away from the qualities of the home. Be selective with statement pieces.

Forget the yard
Curb appeal is important, but remember you’re selling the back and sides of the property as well. Clear out junk and growth on all sides of the house, and highlight outdoor spaces’ potential of with a fire pit seating area or a potted vegetable garden.

Shut out the light
A dark home looks small and uninviting. Maximize space and appeal by pulling back those curtains and shades, letting the sunlight do the hard work. Experiment with accent lighting on bookshelves and staircases for a high-end touch.

A well-staged home can make all the difference when selling. Want more pointers on prepping your home to highlight its best features and maximize its value? Call me today!

Related topics:
agent advice, organization, real estate marketing, staging property, sales

Posted by Matthew Taylor | Jan 12, 2015 | Feature Articles, Finance, Laws and Regulations, Real Estate | 1

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

Beginning March 2nd, 2015, it’s going to get tougher for seniors to qualify for a reverse mortgage.

The Federal Housing Administration (FHA) has issued tighter lending standards and stricter credit requirements for homeowners seeking an FHA-insured home equity conversion mortgage (HECM). These are known more colloquially as a reverse mortgage, by which homeowners aged 62 or older convert equity in their principal residence into cash. FHA-insured HECMs account for upwards of 90% of all reverse mortgage originations nationwide.

What is the primary reason for the stricter lending standards? The FHA cites out-of-control reverse mortgage insurance claims due to unpaid:

• property taxes;
• hazard insurance payments;
• assessment bonds and other recurring ownership costs.

Applicants for FHA reverse mortgages are now required to demonstrate the financial ability to timely pay all property taxes, hazard insurance premiums, assessment bonds and other recurring ownership costs (TI payments) based on the owner’s:

• creditworthiness;
• TI payment history;
• income from all sources; and
• household debt.

In addition to meeting the new requirements, applicants still need to:

• be at least 62 years of age;
• occupy the mortgaged property as their principle residence;
• have no delinquency on their mortgage payments or any other federal debt; and
• complete mandatory reverse mortgage counseling with an approved counseling agency.

Lenders may still approve a reverse mortgage if the applicant doesn’t fully qualify due to extenuating circumstances resulting in a temporary loss of income, such as the death of a spouse or a hospitalization. In such cases, lenders may require a portion of the reverse mortgage proceeds be impounded for future TI payments as an additional cushion in the case of temporary hardship.

The Department of Housing and Urban Development (HUD) has published guidelines for what circumstances are considered extenuating and how much impounding is required.

Stabilizing the FHA insurance program

The new FHA reverse mortgage qualification rules are partly the result of the recent FHA mortgage insurance fund crisis, which resulted in a $1.7 billion bailout in 2013. In addition to the bailout, the solvency of the government mortgage guarantee program has further been fortified by:

• increased mortgage insurance premiums (MIPs);
• tighter underwriting requirements; and
• rising property prices.

These developments have contributed to the program’s steadier footing in recent days. But the agency maintains it continues to make payouts from the tax-backed mortgage insurance fund, much of that stemming from reverse mortgage borrowers who continue to default on TI obligations.

Hence the new protective underwriting requirements for reverse mortgages: virtually all reverse mortgages are FHA-insured. That means the government is on the hook for any deficiency in the value of a property to cover the balance of a reverse mortgage in a foreclosure.

Balancing the reverse mortgage market

Additional fortification for the FHA’s mortgage insurance program is great, of course, but some have raised the issue that stricter reverse mortgage requirements freeze out exactly the limited-income seniors the program was designed to benefit. This may well be true, but whether or not that’s a benefit or a detriment is another story.

Reverse mortgages are complex, potentially risky financial instruments often used to prey on uninformed elderly homeowners in need of immediate income. Requiring a documented ability to carry the costs of a reverse mortgage, in conjunction with mandatory counseling and limits on the amount of equity homeowners may withdraw, will serve to limit reverse mortgages to those borrowers who are financially savvy enough to sustainably handle one.

The new rules will put FHA reverse mortgages, and the income they provide, out of reach of some. But older homeowners in need of retirement income have alternatives to a potentially dangerous reverse mortgage.  Those with substantial equity are generally better off selling their often-oversized Baby Boomer castles, relocating and reinvesting or saving the sales proceeds for a stable retirement reserve. This is especially true for the majority of homeowners with limited retirement income and considerable equity in a home which may be their only major asset.

Related topics:
department of housing and urban development (hud), federal housing administration (fha), mortgage insurance, reverse mortgage

Posted by Matthew Taylor | Feb 10, 2015 | Finance, New Laws, Real Estate | 0

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

Added and amended by HUD Mortgagee Letter 2014-15

Effective Date: October 1, 2014

The Federal Housing Administration (FHA) requires all pre-foreclosure sales and deeds-in-lieu of foreclosure transactions on properties encumbered with FHA-insured mortgages to be arm’s length transactions. FHA defines an arm’s length transaction as:

• a transaction between two unrelated parties;
• characterized by a fair market value selling price; with
• no hidden terms or special understandings between any person or entity involved in the sale (i.e., buyer, seller, appraiser, escrow, real estate agents or mortgage holder).

The arm’s-length requirement has been clarified to allow real estate brokers and agents to:

• serve in more than once capacity in arranging the PFS transaction; and
• include customary broker’s fees in the HUD-1 Settlement Statement.

Consideration for the occupant-seller

Owner-occupant sellers may apply to the FHA for a credit of up to $3,000 on the successful completion of a pre-foreclosure sale.

Sellers who, following a cash reserves analysis, are required to contribute cash toward the unpaid principal may apply the $3,000 credit towards their required cash contribution.

Sellers who are not required to contribute cash toward the unpaid principal may use the credit to resolve junior liens, offset sales transaction costs and pay for relocation costs. Use of the credit is to be itemized on the HUD-1 Settlement Statement and paid at closing.

New marketing requirements

Seller’s brokers are required to list and market a pre-foreclosure sale property for at least 15 calendar days before evaluating any offers. After the 15-day period, offers may be evaluated as they are received.

If multiple offers are received, the seller’s broker is required to forward the offer that provides the highest net return to HUD and complies with HUD’s bid requirements to the mortgage holder.

Editor’s note — FHA pre-foreclosure sale bid requirements are found in HUD Mortgagee Letter 2008-43.

Back-up offers are to be held by the seller’s broker until the mortgage holder makes a decision on the offer submitted previously.

All offers submitted to the mortgage holder for evaluation need to be signed by both the seller and prospective buyer. When approving a pre-foreclosure sale, the FHA mortgage holder is to attach a standard Pre-Foreclosure Sale Addendum signed by the buyer, seller, buyer’s and seller’s agents and escrow to the submitted offer.

Read the full Mortgagee Letter.

Related topics:
deed-in-lieu-of-foreclosure, fha-insured loan, short sale

Posted by Carrie B. Reyes | Apr 23, 2015 | Buyers and Sellers, Home Sales | 0

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

Eight of the top ten fastest-moving housing markets are located in California, according to a recent report by Trulia.

The report shows the share of homes sold within 60 days of their list date are:

• 74% in San Francisco;
• 70% in San Jose;
• 70% in Oakland;
• 67% in San Diego;
• 59% in Orange County;
• 58% in Sacramento;
• 57% in Los Angeles; and
• 57% in Ventura.

Today, each of these local markets has more homes selling within 60 days than one year ago. San Diego experienced the biggest jump from 56% sold within 60 days of listing last year to 67% today. In other words, California’s swiftly moving housing market is only moving faster.

The main contributor to the quick closings is similarly quick increases in home prices. In California, home prices generally leveled off in late 2014. However, they remain high today and the perception of rising prices continues for most buyers and sellers (the sticky price phenomenon). When prices rise quickly, homebuyers knowledgeable of the increased pace are eager to close before prices rise further.

But pricing is a surface level issue. Underneath, a lack of inventory squeezes local housing markets to their limits. There isn’t enough new construction to keep up with homebuyer demand in desirable areas like San Francisco or San Jose. There simply isn’t enough housing to go around where people want to be. This high demand, low supply issue is compounded by outdated zoning, which limits further development.

Thus, sellers are justified to ask more, and buyers who can qualify to do so pay through the nose for the exclusivity of buying in a desirable neighborhood.

Buyers have had a helping hand in recent months. With the decrease in mortgage rates beginning in October 2014, buyer purchasing power has risen quickly. In fact, a California resident with a median income is able to borrow $20,000 more in April 2015 than they were able to borrow in October of 2014, due to the drop in mortgage rates alone. Buyer purchasing power supports rising home prices, and will continue to prop up home prices (and local housing markets in general) until mortgage rates rise again.

Interest rates are expected to rise towards the end of 2015, or perhaps later. It all depends on the Federal Reserve (the Fed), which is a bit cryptic about its timing. But rates will rise, and mortgage rates will rise in anticipation. Once they do, not only will home sales volume and prices stall, but the market will experience a slowdown.

The takeaway: 2015 is a great time to be a seller in California, since you won’t have to list your home for long and pricing is generally favorable. It’s also not a bad time to be a buyer, as your purchasing power is up and you can still qualify to purchase for those high listing prices.

However, the good times won’t last forever. 2016 will see reduced purchasing power and a drop off in sales volume and prices. It’ll all pick up again once homebuyers have a chance to adjust, likely around 2017 or 2018. But be prepared for some lean months in between.

Related topics:
buyer purchasing power, california home prices, housing inventory, sticky pricing, zoning

Posted by Carrie B. Reyes | Jun 11, 2015 | Buyers and Sellers, Economics | 0

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

We all know that where you live dictates how much you spend on housing – a three-bedroom house in San Francisco costs several times that of a three-bedroom in nearby Oakland. But where you work in relation to where you live – and how you get there – can also severely restrict your cash flow.

The Department of Housing and Urban Development (HUD) has an online calculator, made to help families balance housing and transportation costs. This tool helps families figure out what neighborhood is most cost-efficient for them. HUD also has some interesting analysis of average housing and transportation costs for renters and homeowners, available by zip code, city, county and state, as of the 2010 Census.

Here are the average housing and transportation costs in some of California’s top counties:

The general rule is renters spend less of their income on housing and transportation costs. However, renters also tend to earn much less on average than homeowners. Thus, while the share of income spent on transportation is less for renters, the actual dollar amount spent is likely even less than it appears. That’s because renters are more often found nearer to city centers (where public transportation is plentiful), while homeowners make up a greater share of a metro’s suburban population (where you pretty much have to rely on cars).

What this chart shows is that it’s more expensive to be a homeowner, both in terms of housing and transportation costs. But the benefits of homeownership can be worth the extra distance to work and amenities. It all depends on your priorities.

Also notable, the actual cost of housing is far more expensive in San Francisco and Santa Clara than down south in Riverside. But since incomes are limited for residents of Riverside and surrounding areas, (San Francisco incomes average more than two-and-a-half times Riverside incomes) even small expenses add up quickly. This is evident by the fact that residents of Riverside spending nearly as much on transportation as they do on housing.

SoCal needs to revisit transportation policies

Why are families living in Southern California destined to spend so much of their income on transportation? As expected, it has to do with:

• miles traveled to work; and
• use of public transit, like buses and trains.

Source: HUD

San Francisco County (with the smallest share of income spent on transportation) leads for most transit trips taken each year, with the average person taking public transit more than once a day. Likewise, San Francisco residents drive the fewest number of miles each year. On the other end of the spectrum, Riverside (with the highest income share spent on transportation) is number one for most miles traveled each year by car and the fewest number of transit trips taken.

Editor’s note: San Francisco and Riverside are extreme examples, as each county has a vastly different size and population. However, the average commuting difference isn’t so great to make them incompatible examples. The average commuting distance in San Francisco County is eight miles, compared to Riverside’s slightly higher nine miles, according to the Brookings Institution.

Thus, more transit trips and fewer car trips equals less money spent on transportation.

Further, renters tend to take more transit trips and drive fewer miles than homeowners living in the same counties, according to HUD. This is likely due to the location of rental properties – closer to urbanized areas – compared to those traditionally lived in by homeowners – single family residences (SFRs) in the suburbs.

Yield for zoning

The high cost of transit is a vicious cycle to get stuck in, and one regular citizens can’t do much to break.

One solution is simply for city officials to add more public transit options in areas where most people live – the suburbs. Highly urban areas generally have sufficient public transit options, making it much cheaper to rely on buses, trollies or trains to get to work than paying for car payments, insurance, gas and parking (not to mention dealing with traffic). But the suburbs are way behind.

Of course, it’s not cheap to add accessible transit options to suburban neighborhoods. Since homes are spaced so far apart, bus stops and train stations are found few and far between. If you live in places like Los Angeles, San Diego or San Francisco, you’ll notice train stations can be near the most expensive neighborhoods, since living near public transit is a desirable amenity for buyers and renters alike. Thus, middle- and low-income families (who would benefit most from low-cost transportation options) can’t pay to be near to public transit.

Rather than pay for more transit options deeper into the suburbs, a cheaper fix is to enable more housing to be built near the already established train and bus routes. This means changing zoning restrictions to allow:

• higher buildings; and
• fewer parking requirements for new building projects near public transit.

Still, it’s a long way between wishing for a fix and addressing your immediate commuting costs. While you wait for a transit revolution in your neighborhood, you can try carpooling. This cuts down transportation costs and can reduce commute time if you take a route with a carpool lane.

The average share of carpoolers in the nation is just over 10% of all commuters, according to the Brookings Institution. In California, Bakersfield and Stockton have the highest rates of carpooling, at 17% and 15% respectively.

Why reducing transportation costs matters

The benefits of cutting down on transportation costs are significant.

Currently, about 30% of all jobs in a metropolitan area can be accessed by public transit, according to a report by Brookings. That effectively takes 70% of  jobs off the table for residents unable to afford a car and all the related costs. Hence the vicious cycle: most low-income individuals simply can’t get to higher paying jobs.

Further, many of our state’s households living under the poverty line reside in the suburbs, where access to transit is most difficult to come by. Therefore, simply adding more jobs isn’t enough to guarantee economic prosperity for a region – they have to be able to be accessed by public transportation.

With that in mind, when assisting homebuyers, remind them of transportation costs. It may not have occurred to them that spending more money to get closer to transit is more than an issue of convenience — it can also save money in the long run. If they are aware of specific numbers, they can make more informed buying choices.

Related topics:
costs of homeownership, renters, suburbs, transportation, zoning

Posted by ft Editorial Staff | Nov 30, 2015 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Civil Code § 4735
Amended by A.B. 786
Effective date: October 11, 2015

The homeowners association (HOA) of a common interest development (CID) may only fine a homeowner for reducing or eliminating landscape irrigation if the homeowner receives recycled water for landscape irrigation and fails to maintain their landscaping.

Editor’s note — Before this clarification, many HOAs interpreted the previous law to mean that if an HOA used recycled water to irrigate common areas, it then had the authority to fine individual homeowners for failing to maintain their landscaping.

Related topics:
drought, homeowners association (hoa)

Posted by Sarah Kolvas | Sep 20, 2015 | Finance, Laws and Regulations, Real Estate, Your Practice | 0

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

This article discusses the identity theft prevention program which mortgage loan originators (MLOs) and mortgage loan brokers (MLBs) are to implement under the federal Red Flags Rule.

Applications and credit reports for borrowers seeking mortgage funds are consistently received by:

• mortgage loan originators (MLOs) of consumer mortgages; and
• mortgage loan brokers (MLBs) of business mortgages.

This personal information is collected from applicants as a crucial part of arranging any mortgage. The information ensures that mortgage funds are disbursed to the correct person and actually secured by the subject property, all part of a mortgage lender’s risk management. Prudent processing of a mortgage origination requires a complete profile on the borrower and their ownership of the real estate which will be security for the mortgage debt.

However, identity theft poses a threat to the integrity of all mortgage originations.

As the first point of contact with a borrower, MLOs and MLBs are in perfect position to reduce these risks.

Federal regulations step in to reduce the risk

The Red Flags Rule was developed by the Federal Trade Commission (FTC) to mitigate identity theft risks borrowers of mortgages are exposed to when a mortgage is made or arranged by MLOs and MLBs.

Proprietary and corporate brokers who are MLO and MLB business operations need to implement written procedures and checklists for screening mortgage applications, referred to as an Identity Theft Prevention Program (ITPP). The procedures are required to help MLOs and MLBs adequately detect suspicious activity and indications of potential fraud, called “red flags,” in mortgage applications and other documents provided by an applicant. [15 United States Code §1681 et seq]

Implementation of written procedures for detecting suspicious activity requires the MLO or MLB business operation to:

• screen mortgage applications and related documents for typical signs of fraud and identity theft; and
• protect the personal information of applicants and, if servicing mortgages, current borrowers from identity theft.

Applying the rule to MLO and MLB businesses

MLOs and MLBs are subject to the Red Flags Rule when, in their course of making or arranging mortgages, they also:

• obtain or review credit reports relating to any type of mortgage origination;
• provide information to credit reporting agencies; or
• advance mortgage funds themselves — whether from their own funds or under a warehouse line of credit — or on behalf of a lender. [15 USC §1681m(e)(4)]

The rule initially targets MLOs who make, arrange or service mortgages which fund primarily personal, family or household purposes, called consumer mortgages. However, MLBs making or arranging business mortgages are also required to create procedures to prevent fraud when the mortgages they make present a reasonably foreseeable risk of identity theft, such as those that may result from data accessible by telephone or the internet. [16 CFR §681.1(b)(3)]

Nonetheless, as good business practice and risk management, all MLBs are advised to implement procedures for reviewing mortgage applications and detecting suspicious activity, regardless of the level of risk they determine exists.

In addition to following their own written procedures, MLOs and MLBs acting as service providers for a lender also need to follow any procedures imposed by the lender as part of its security requirements for detecting mortgage fraud. [16 CFR §681, Appendix A(VI)(c)]

Further, all MLBs and MLOs are uniformly required to have policies for verifying a borrower’s identity upon receiving an address discrepancy notice from a credit reporting agency. [16 CFR §641.1]

Written procedure basics

Simply put: compliance with the Red Flags Rule requires the development of specific procedures by MLOs/MLBs for their critical review of mortgage applications and documents to detect activity that may indicate fraud or identity theft. Thus, individual MLO and MLB agents need to be familiar with their company’s written program and understand how to recognize risk factors.
Typically, this requires:

• an understanding of what constitutes suspicious activity;
• how to spot discrepancies in information provided by an applicant; and
• how to properly screen all mortgage applications and related documents.

To help MLO and MLB agents to implement these requirements for their employing broker, the written documentation of a company’s checklists and procedures need to:

• identify activities, errors, discrepancies and documents that indicate fraud or identity theft;
• outline the process for detecting suspicious activity when reviewing applications and documents;
• clarify how to respond to indications of fraud when discovered; and
• explain how to update the procedures periodically to reflect changes in risks to borrowers or the company (e.g. by adding any new type of activities deemed indicative of fraud or identity theft). [16 CFR §681.1(d)(2)]

Identifying and detecting suspicious activity

To determine what type of activity is suspicious and may indicate fraud, MLOs and MLBs are required to gauge the risk factors in the mortgages they originate, including:

• the types of mortgages offered;
• methods used to make and access mortgages; and
• their previous experience with identity theft and fraud. [16 CFR §681 Appendix A(II)(a)]

They may draw from past incidents of identity theft, any changes in identify theft risks they have identified and supervisory guidance given about what type of activity is suspicious or new methods used by fraudulent applicants.

The use of a checklist containing activity identified as suspicious is required to determine whether an applicant’s information indicates fraud. However, the content of the list will vary by company and is to be set out in writing by each MLO/MLB company.

Examples of activity that may be added to the checklist as indications of fraud include:

• alerts or warnings from credit reporting agencies or service providers, such as fraud detection services;
• suspicious documents that appear to be altered or forged;
• suspicious personal identifying information, such as a peculiar address change;
• unusual activity related to a mortgage; and
• notice from borrowers, victims of identity theft, law enforcement or other persons regarding potential identity theft related to a mortgage. [16 CFR §681, Appendix A(II)(c)]

MLOs and MLBs are to further screen mortgage applications by:

• obtaining and verifying personal information about a mortgage applicant; and
• monitoring transactions and verifying the validity of any change of address requests for existing mortgages they service. [16 CFR §681, Appendix A(III)]

Responding to suspicious activity observed

Once suspicious information is detected in an application or other related document, MLOs and MLBs need to have a process for responding to indicators of identity theft by:

• monitoring for errors and suspicious activity when servicing the mortgage;
• contacting the applicant or borrower;
• changing passwords, security codes or other security devices that allow access to the mortgage or application;
• reopening a mortgage with a new account number;
• closing an existing mortgage;
• withholding collections on a mortgage and not selling it to a debt collector;
• notifying law enforcement; or
• determining no response is needed under the circumstances at hand. [16 CFR §681, Appendix A(IV)]

To determine which response is the most appropriate, MLOs and MLBs need to assess each mortgage on a case-by-case basis. Responses will depend on the procedures presented in the company’s Red Flag fraud detection manual.

For example, if an MLO or MLB observes a fraud alert situation on a credit report, they need to take extra care to compare identification documents and photos provided by the applicant with other documents on file. If multiple addresses on the credit report are different from the address of the applicant’s property, the MLO or MLB may use the county’s assessor, appraiser or tax collector web site to verify the ownership of the property located at the common address given to them.

In addition to the requirements of the Red Flags Rule, some common actions to take when evidence of identity theft is discovered include:

• filing a Suspicious Activity Report (SAR) (e.g. in the case of suspected mortgage fraud or money laundering) [31 USC 5318(g)];
• confirming the identity of the person applying for the mortgage when a fraud alert is included on a credit report [15 USC §1681c-1(h)];
• abiding by requirements for furnishing accurate information to credit reporting agencies [15 USC §1681s-2]; and
• complying with the prohibitions on the sale, transfer and placement for collection of certain debts resulting from identity theft. [15 USC §1681m]

Oversight and procedure updates

As part of the administration requirements, the MLO or MLB company needs to:

• obtain written approval of the procedures from either a board of directors or designated officer/employee in senior management;
• include the board of directors or designated officer/employee in oversight, development and implementation of procedures; and
• provide oversight of any service providers by requiring them to also follow risk management procedures. [16 CFR §681.1(e)]

Proper administration of the written program requires the board of directors, committee of the board or a designated officer/employee in senior management to establish annual reports for their review of suspicious activity and staff responses. [16 CFR §681, Appendix A(VI)]

The annual reports are evaluated for the effectiveness of the company’s procedures in addressing identity theft risks. Material changes may need to be recommended, such as how MLOs/MLBs review applications or what types of activities and documents are deemed suspicious by their written checklists. [16 CFR §681, Appendix A(VI)(b)]

To assess whether changes are needed, an MLO or MLB is encouraged to consider:

• their experiences with identity theft;
• changes in methods of identity theft and its detection, prevention and mitigation;
• changes in the types of mortgages the MLO or MLB offers or maintains; and
• changes in the business arrangements of the credit, including mergers, acquisitions, joint ventures and service provider arrangements (e.g. transitioning the credit to a warehouse line). [16 CFR §681, Appendix A(V)]

Further, management of the written program requires oversight of service providers used to perform activity in connection with a mortgage to ensure they are also compliant with the Red Flags Rule. This includes credit-checking services, contract processors, notaries and document storage companies. [16 CFR §681, Appendix A(VI)(c)]

For example, an MLO may require a service provider, by contract, to implement policies for detecting signs of fraud encountered during the service provider’s activities and reporting them to the MLO or mitigating identity theft themselves.

Penalties for noncompliance

When an MLO or MLB company fails to comply with the Red Flags Rule, the FTC has the authority to:

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

Further, the FTC may commence a civil action against those in violation to recover civil penalties of up to $3,500 per violation. [15 USC §1681s(a)(2)(A); 17 CFR §1.98]

In determining the amount of a civil penalty, the court considers the degree of the violation, any history of similar prior conduct, ability to pay and effects on the ability to continue to do business. [15 USC §1681s(a)(2)(B)]

Check out our graphic below for example “red flags” to watch out for:

Related topics:
consumer mortgages, federal trade commission (ftc), identity theft, mortgage fraud, mortgage loan broker (mlb), mortgage loan originator (mlo)

Posted by Sarah Kolvas | Aug 18, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 3

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

Facts: A homeowner obtains a mortgage secured by a trust deed on their property which is subsequently assigned to a new mortgage holder. The owner later defaults on the mortgage and receives a Notice of Default (NOD) from a substitute trustee named on the notice. However, the new mortgage holder does not execute a substitution formally naming the trustee delivering the NOD as the substitute trustee until several weeks later. The owner fails to tender the required amounts and the property is sold at a nonjudicial foreclosure sale.

Claim: The owner seeks to nullify the foreclosure sale as void, claiming the new mortgage holder wrongfully foreclosed since the substitute trustee was not formally named as trustee when they delivered the NOD and did not have authority to commence foreclosure, thus breaking the chain of title.

Counter claim: The new mortgage holder claims the foreclosure sale is valid since the timing of the formal substitution of the trustee did not affect the trustee’s compliance with required foreclosure procedures or deprive the owner of the opportunity to cure the default and avoid foreclosure.

Holding: A California court of appeals holds the foreclosure sale was not void since the delayed substitution of the trustee was not a material defect that impaired the owner’s ability to cure the default and prevent foreclosure. [Ram v. OneWest Bank (February 6, 2015)_CA4th_]

Read the case text.

Related topics:
foreclosure

Posted by Whitney Trang | Aug 10, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A property owner records a parcel map of their undeveloped land showing one lot. The county tax assessor divides the owner’s land into two lots on the assessor’s map used for tax assessment purposes. The county bills the owner for both lots on the assessor’s map and the owner pays the tax for both lots.

Claim: The owner seeks a tax refund from the county, claiming the county tax assessor made a mistake and billed them for a nonexistent lot since it does not appear in the owner’s parcel map.

Counterclaim: The county seeks to avoid a tax refund to the owner, claiming the taxes were not incorrectly billed since the parcel map and the assessor’s map serve different purposes and do not have to match.

Holding: A California court of appeals holds the owner is not entitled to a refund of the taxes paid on the second lot since parcel maps and assessor’s maps serve different purposes and the assessor’s map clearly describes the entirety of the owner’s land for tax purposes, despite the discrepancy between the maps. [Cafferkey v. City and County of San Francisco (May 12, 2015) _____ CA4th______]

Read the text of the case.

Related topics:
tax refund, assessor’s map, parcel map, tax assessor, tax return

Posted by Whitney Trang | Oct 19, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

[McMillin Albany LLC v. Superior Court (Van Tassell) C.A. 5th Litigation 9696___CA4th­­­­___]

Facts: A homeowner purchases a property from a builder and discovers defects in the construction which lead to damages to their home. The homeowner files a claim against the builder for construction defects and violation of the building standards set forth in the Right to Repair Act without first giving notice of the defects to the builder. The homeowner then dismisses the action against the builder for violating the building standards as set forth in the Act but proceeds with the construction defects claim.

Claim: The homebuilder seeks to delay court proceedings and resolve the matter outside of court, claiming the homeowner is bound by the construction defect notice requirement set forth in the Right to Repair Act which allows the builder to attempt to repair the defects prior to court action since the Act applies to all cases involving construction defects.

Counter claim: The homeowner seeks money losses from the builder claiming they do not have to give notice of construction defects to the builder as stated in the Right to Repair Act since they dismissed their complaint against the builder for violating the Act, thus their case does not fall under the requirements of the Act.

Holding: A California court of appeals holds the homeowner and builder need to complete the pre-litigation process and attempt to resolve the matter outside of court as required by the Right to Repair Act since the homeowner failed to follow guidelines under the Act applicable to all cases involving defects in home construction by not first sending a notice of defects to the builder as required by the Act. [McMillin Albany LLC v. Superior Court (Van Tassell) C.A. 5th Litigation 9696___CA4th­­­­___]

Read the text of the case.

Related topics:
mcmillin albany llc v. superior court (van tassell), home defects, right to repair act, homebuilders, homeowner, notice of defects, construction defects

Posted by Whitney Trang | Sep 24, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

[Carr v. Rosien____CA4th____]

Facts: An individual is in adverse possession of a parcel of real estate for five years. They file a quiet title action to clear title of the owner’s interest of the lot. However, the adverse possessor fails to mail the lis pendens to the owner. The owner transfers half of the property to a new owner before the quiet title action is granted to the adverse possessor. The new owner obtains a mortgage secured by a trust deed on the property. The adverse possessor files a new quiet title action against the new owner and mortgage holder.

Claim: The adverse possessor seeks to quiet title against the new owner and mortgage holder, claiming the adverse possessor was not required to send the lis pendens to the previous owner since they did not have a valid address for the original owner.

Counter claim: The new owner claims the lis pendens is void since the adverse possessor did not mail the lis pendens to the address on the county assessor’s roll regardless of its validity.

Holding: A California court of appeals holds the lis pendens is void and the adverse possessor may not file a quiet title action to clear title of the new owner’s interest since the adverse possessor failed to mail the lis pendens to the previous owner’s address listed on the county assessor’s roll, whether or not the address was valid. [Carr v. Rosien____CA4th_____]

Read the text of the case.

Related topics:
lis pendens, quiet title, county assessor’s roll, commercial leasing, carr v. rosien, adverse possession

Posted by Sarah Kolvas | Dec 28, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Stockton Mortgage, Inc. v. Tope

Facts: A homeowner obtains a mortgage secured by a trust deed on the property. A title insurance company issues a preliminary title report (prelim) offering a title insurance policy. The prelim excludes coverage for a notice of abatement action recorded against the property for code violations and requires a full release be obtained prior to closing escrow. The title insurance company is unable to obtain a release of abatement action due to ongoing violations. The title insurance company issues an insurance policy but does not make reference to the exclusion of the abatement action as the prelim did. The owner later defaults on the mortgage and the mortgage holder forecloses. The mortgage holder submits a claim to the title insurance company for the costs of obtaining a release of notice of abatement action and the title insurance company rejects the claim.

Claim: The mortgage holder seeks money losses from the title insurance company to obtain a release of notice of abatement action, claiming the title insurance company breached the insurance policy by not providing coverage for the notice of abatement action, as it is a lien on title that was referenced in the prelim.

Counter claim: The title insurance company claims the notice of abatement action is not covered by the insurance policy since it is not a lien or encumbrance on title and does not affect the marketability of title.

Holding: A California court of appeals holds the mortgage holder is not entitled to payment from the title insurance company since the notice of abatement action is not a lien on title, but a notice of substandard property conditions which does not relate to title conditions, whether or not referenced in the prelim. [Stockton Mortgage, Inc. v. Tope (December 23, 2014)_CA4th_]

Editor’s note — The mortgage holder also claims the title insurance company breached the contract by not obtaining full release of the notice of abatement action as stated in the prelim.

However, a prelim is not an agreement or a representation of title conditions. It is merely an offer to issue a title insurance policy based on the contents of the prelim and any listed title encumbrances that may be reflected on the public record. Thus, the prelim does not impose liability on the title insurance company. In this case, the court ruled the contents of the prelim did not impose a duty on the title insurance company to obtain a release of notice of abatement action.

Read the case

Related topics:
preliminary title report (prelim)

Posted by Whitney Trang | Sep 14, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

[Johnson v. Federal Home Loan Mortgage Corporation____F3d____]

Facts: An owner refinances their mortgage secured by a trust deed on their property and establishes an impound account for the payment of homeowner’s insurance. The lender sells the mortgage to another mortgage holder but continues to service it. The lender fails to make timely homeowner’s insurance payments from the impound account and the policy is cancelled. The owner’s house burns down and the owner is denied coverage under their policy but is provided relief under the lender’s back-up insurance policy. The owner’s mortgage payments increase to cover the cost of the back-up insurance policy and the owner fails to make the increased payments, prompting the mortgage holder to foreclose.

Claim: The owner seeks to reverse the foreclosure, claiming the mortgage holder breached the terms of the trust deed and their fiduciary duty owed to the owner when they failed to pay the homeowner’s insurance since the mortgage holder is liable for the servicing agent’s conduct upon purchasing the mortgage.

Counterclaim: The mortgage holder claims they are not liable for the missed insurance payments since they did not assume the lender’s responsibilities as servicing agent and thus, it was the lender’s responsibility, not the mortgage holder’s, to timely pay the homeowners’ insurance.

Holding: A United States court of appeals holds the mortgage holder did not breach the terms of the trust deed since the mortgage holder’s purchase of the mortgage does not impose liability for the conduct of the servicing agent including the failure to make timely homeowner’s insurance payments from an impound account. [Johnson v. Federal Home Loan Mortgage Corporation____F3d____]

Read the text of the case.

Related topics:
mortgage, secondary mortgage market, lender, fiduciary duty, trust deed, johnson v. federal home loan mortgage corporation, freddie mac, foreclosure, homeowner s insurance

Posted by ft Editorial Staff | Feb 16, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions, Tax | 0

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

Facts: A county tax assessor conducts a tax audit of the holdings of a property owner which results in the assessment of additional taxes on personal property which the property owner does not own. The property owner appeals the assessment on the grounds the property does not exist and therefore no taxes are due. At the instruction of the appeals board, the property owner pays in full the assessed taxes, penalties and interest in several installments. After all assessed taxes and related amounts are paid, the property owner files a claim for a refund of the assessed taxes and related fees without first applying for a reduction in the assessment.

Claim:  The property owner seeks a full refund of the taxes, penalties and interest paid on the assessment without first applying for a an assessment reduction, arguing that an assessment reduction is not an available administrative remedy since the assessed property does not exist and thus the refund claim is valid.

Counterclaim: The County seeks to deny the property owner’s tax refund claim, arguing the property owner failed to exhaust available administrative remedies since they did not file a request for an assessment adjustment prior to filing the refund claim.

Holding: The California Court of Appeals holds that, since the property owner does not own the assessed property, an application for an assessment reduction is not an available remedy and a refund claim is proper. [Williams & Fickett v. County of Fresno (2015) 232 CA4th 1250]

Read the full decision here.

Related topics:
property assessment, property tax

Posted by Sarah Kolvas | Apr 28, 2015 | Laws and Regulations, Property Management, Real Estate, Recent Case Decisions | 0

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

Facts: A tenant and their child move into a residential rental unit. The unit is subject to a local rent control ordinance which limits the rental rate increases as long as the original occupants remain in the unit. The rental agreement entered into by the tenant and landlord only names the tenant as a party to the agreement, and not their child. Several years later, the tenant moves out, but their child (now an adult) continues to occupy the unit. Upon the tenant’s leave, the landlord increases the amount of the monthly rental fee beyond the rental rate permitted by the local rent control ordinance. The tenant’s child refuses to pay the increased rental fee.

Claim: The landlord seeks to enforce the increased rental fee, claiming the tenant’s child is not protected by the rent control ordinance since they are not an original occupant as they were not a party to the original rental agreement.

Counter claim: The tenant’s child claims they are not obligated to pay the increased rental fee and are entitled to continued rent control since they were an original occupant along with their parent when the rental agreement was entered into, even though they were not a party to the agreement.

Holding: A California court of appeals holds the tenant’s child is entitled to continued rent control even though the parent alone was a party to the rental agreement since the child is considered an original lawful occupant due to their continued occupancy in the unit from the start of the tenancy subject to the rental agreement. [Mosser Companies v. San Francisco Rent Stabilization and Arbitration Board (January 21, 2015)_CA4th_]

Read the case text.

Related topics:
rent control

Posted by Sarah Kolvas | Jan 16, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A limited partnership (LP) obtains an option on a ground lease for a parcel of land owned by a trust. The LP constructs condominiums on the land and subdivides the ground lease into multiple identical leases — one for each condo unit. The LP then enters into separate agreements with unit owners assigning one unit lease to each owner. The lease assignments require the owners of the units to pay a monthly assignment fee to the LP for a specified amount of time per an assignment fee provision contained in the unit leases. The LP does not record the unit leases against the property, but records each lease assignment and a memorandum against the condominiums, all referencing the unit leases.  Later, the LP partners dissolve the LP, each receiving a share of the assignment fees. The homeowners’ association (HOA) purchases the land underlying the condos from the trust and, subsequently, the interests in the assignment fees from all partners except one. The remaining partner continues to bill the unit owners for their share of the assignment fees based on the provision in the unit leases.

Claim: The HOA seeks to terminate the assignment fees, claiming the assignment fees are transfer fees since they are imposed by the unit leases for a transfer of interest in property and, thus, the fees are invalid as the LP failed to comply with transfer fee requirements to record the unit leases against the property and provide constructive notice to the unit owners.

Counter claim: The LP partner claims the assignment fees are enforceable since the LP recorded and provided unit owners with documents referencing the unit leases containing the assignment fee provision, thereby meeting the substantial compliance exemption for transfer fees.

Holding: A California court of appeals held the assignment fees are transfer fees but remain enforceable since the LP met the substantial compliance exemption for transfer fees by recording and providing unit owners with documents that reference the unit leases containing the assignment fee provision, thus giving constructive notice of the assignment fees.  [Marina Pacifica Homeowners Association v. Southern California Financial Corporation (December 16, 2014)_CA4th_]

Editor’s note — The HOA additionally claimed the assignment fees were not enforceable since the HOA’s purchase of the underlying land extinguished the unit leases and merged the interests of the lessor and lessees. However, the court dismissed this claim, holding the mutual intent of the parties to the lease agreement was to enforce an assignment fee for a specified amount of time and did not consider a purchase of the land by the HOA. Thus, the court ruled it was fair and reasonable to continue enforcing the assignment fee provision for the specified time period even after the unit leases were extinguished.

Read more:

Read case text.

Related topics:

Posted by Amy Thomas | Nov 4, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

First American Title Insurance Company v. Spanish Inn, Inc.

Facts: An owner of commercial property obtains a construction loan secured by a trust deed and obtains a title insurance policy. As a condition of the policy, the owner indemnifies the insurer against loss by mechanic’s liens. The owner later misses the completion deadline under the loan agreement and the lender declares the loan to be in default. The contractor who performed the work records a mechanic’s lien on the property. The lender assigns its trust deed to another mortgage holder that subsequently purchases the property at the foreclosure sale. The contractor then attempts to foreclose on the mechanic’s lien. The new owner tenders the foreclosure claim to the title insurer, who defends them against the foreclosure action and demands the prior owner reimburse the title insurer for related costs.

Claim: The title insurer seeks reimbursement from the prior owner for money losses resulting from the mechanic’s lien foreclosure action, claiming the prior owner is liable since they agreed to indemnify the title insurer for all costs and fees incurred in connection with a mechanic’s lien.

Counterclaim: The prior owner denies they owe reimbursement to the title insurer, claiming the mechanic’s lien is not excepted from the insurance coverage since the lender caused the lien to be recorded by providing less than the contracted amount for the construction loan which caused the owner to default on the loan, and thus the lender is liable.

Holding: A California court of appeals holds the title insurer is not liable for the costs of defense against the mechanic’s lien and is entitled to reimbursement from the prior owner since mechanic’s liens were excepted from the insurance coverage and the prior owner indemnified the title insurer against losses resulting from mechanic’s liens. [First American Title Insurance Co. v. Spanish Inn, Inc. (2015) 239 CA4th 598]

Read the text of the case.

Related topics:
foreclosure, title insurance

Posted by Matthew Taylor | Mar 12, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: An access and utility easement crosses a property to provide ingress and egress to an adjoining rear property via a driveway. The owners of the rear property improve the easement with pavement, plantings, irrigation and lighting. The owners of the front property do not object to these improvements and the rear property owners maintain the improvements for many years. When the rear property owners sell the property, its new owners continue to use and maintain the improvements to the easement across the front property, the owners of which later sell to a new owner as well. The new owner of the front property is fully aware of the existence of the easement and the improvements made thereupon by the rear property’s previous owners and maintained by its current owners. Six years after purchasing the front property, its new owners demand the rear property owners remove the improvements to the easement crossing the front property.

Claim: The front property owners seek the removal of improvements to the access and utility easement, arguing that the improvements exceed the purpose of the easement and the rear property owners never gained the express permission of the front property owners to make improvements.

Counterclaim: The rear property owners seek to maintain the improvements to the easement, claiming that the previous front property owners’ acquiescence to the improvements and the considerable expense and effort in improving and maintaining the easement on the part of both the current and previous rear property owners establish an irrevocable license to continue to maintain the easement improvements.

Holding: A California Court of Appeals holds that the rear property owners’ effort and expenditure in improving and maintaining the easement combined with the front property owners’ failure to object to the improvements for the first six years establish the rear owners’ right to an irrevocable license to maintain the improved easement across the front property regardless of the explicit or implied nature of both the current and previous front owners’ permission. [Richardson v. Franc (2015) 233 CA4th 744]

Read the text of the case.

Related topics:
easements

Posted by Carrie B. Reyes | Feb 23, 2015 | Economics, Fair Housing, Real Estate | 2

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

A wide disparity exists between the homeownership rates of White, African American and Hispanic households, according to analysis from the Urban Institute. As of 2013, homeownership rates nationwide are:

• 69.4% for White households;
• 45.4% for Hispanic households; and
• 42.8% for African American households.*

How do homeownership rates fare across multi-racial and multi-faceted California?

That’s more difficult to nail down, due to insufficient data in recent years. However, let’s take a look at the homeownership rate in California’s largest regions alongside each area’s racial makeup as of 2013, the most recent Census year.

You’ll notice places with high homeownership rates (Orange County, San Diego and San Francisco) all have a higher than average White population. Los Angeles has a below average homeownership rate, along with a much smaller White population and larger Hispanic and African American population.

*Editor’s note — The Urban Institute’s study does not report on homeownership rates for other minority groups, like Asian or Pacific Islanders. However, given that this group makes up a large share of California’s population, we have included this population in the graph, above. Population labels follow the Census terminology of White only, Hispanic, Asian and African American.

Why is it so much harder for African American and Hispanic households to become homeowners?

A lot of factors converge to put these groups at a financial disadvantage, which in most cases hinders their ability to attain homeownership.

The Urban Institute identifies several intertwined factors:

• The average lifetime earnings of a White individual born in 1943-1951 is $2 million. The average African American individual born in the same period earns $1.5 million. The corresponding Hispanic individual earns even less, at $1 million.
• White families are five times more likely to receive large inheritances (of at least $10,000) than African Americans (no study has been completed on other minority groups).
• Savings are disrupted by unequal access to retirement plans, as the average White family has $130,500 in retirement accounts. The average African American family has $19,000 saved for retirement and the average Hispanic family has $12,300 saved in retirement funds.
• The student debt load of an average White family — not just those who take out student loans, but all White families — is just over $8,000. The average African American family shoulders $10,300. The average Hispanic family holds $3,400 in student debt. (Of note: when you limit the average student debt load to just those who have taken out student loans rather than the entire population, the average amount is three to four times higher across racial groups).
• The average graduation rate at private not-for-profit four-year colleges is 67% for White students, 45% for African American students and 60% for Hispanic Students. (Asian students have the highest graduation rate at 75%.) This is according to the College Board, and identified by Vox.

These combined disadvantages make saving for a down payment and qualifying for a mortgage disproportionately difficult (or impossible) for many African American and Hispanic families. This corrupt cycle is most apparent in the inheritance statistic. In this case, “keeping it in the family” means the continuation of wealth concentrated within White families. There’s nothing wrong with leaving or receiving inheritance gifts, it’s just an example of the continuing income disparity between races and the resulting homeownership gap.

There are some options for low-income families of any race wishing to become homebuyers. The Department of Housing and Urban Development (HUD) has a list of homebuyer programs for underserved communities. However, most federal programs aim to subsidize those who are already homeowners, rather than converting tenants into first-time homebuyers.

For example, the mortgage interest tax deduction (MID) hugely benefits the top 20% of income earners. Of the $69 billion distributed in tax subsidies in 2013, $50 billion went to this top-income class, according to the Urban Institute.

A better use of government energy would be to assist current tenants so they have more ability to save for down payments. This would help end the cycle of overspending on rent and under saving for other endeavors, like a college education, retirement or a home purchase. Personal savings remain low, averaging 4.8% in 2014. Meanwhile, residential rents have risen quickly in recent years, further denting the homeownership hopes for current renters.

Related topics:
homeownership, income inequality, mortgage interest tax deduction (mitd), student debt

Posted by Matthew Taylor | Jan 15, 2015 | Laws and Regulations, Property Management, Real Estate, Recent Case Decisions | 0

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

Facts: A landlord files an action to evict a tenant for a violation of the lease. During the first three months of the pending eviction action, the tenant timely pays rent by direct deposit to the landlord’s bank account per the lease terms, which the landlord neither returns nor rejects. The tenant then advances the next three months’ rent which the landlord, considering the lease terminated and the rent no longer due, rejects and returns to the tenant. The eviction action is dismissed and the lease is reinstated. The landlord does not provide notice or demand repayment of the three months’ rent previously returned, and serves the tenant with a three-day notice to pay rent or quit. The tenant pays the back rent on the fourth day after service of the notice, which the landlord also rejects.

Claim: The landlord seeks an unlawful detainer (UD) action and payment of money losses and fees claiming the tenant is in default since the lease was reinstated with the dismissal of the eviction action and the tenant did not timely pay the back rent under the three-day notice to pay rent or quit.

Counterclaim: The tenant seeks to invalidate the three-day notice to pay rent or quit and the landlord’s UD action claiming when the lease was reinstated, the three months’ rent was not in default but merely due since the tenant was not notified of the reinstatement of the lease and the three months’ advance rent was timely paid even though the landlord returned it.

Holding: A California Court of Appeals holds that the three-day notice to pay or quit is void and the UD action thus invalid since the tenants had timely paid by direct deposit all rent due through the period covered by the three-day notice, and the returned rent was merely due — not in default — on the reinstatement of the lease. [Kruger v. Reyes (2014) ___CA3rd___]

Related topics:
default, three-day notice to pay rent or quit, unlawful detainer (ud)

Posted by Amy Thomas | Oct 28, 2015 | Laws and Regulations, New Laws, Property Management, Real Estate | 1

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

Calif. Civil Code §1940.8.5
Added by S.B. 328
Effective date: January 1, 2016

A residential landlord or property manager who applies pesticides on residential rental property without hiring a licensed pest control operator needs to provide written notice of the pesticide use to tenants at least 24 hours before the pesticide is applied.

The notice may be provided by:

• first class mail;
• personal delivery to tenant or responsible adult at the rental unit;
• placing the notice under the door of the rental unit;
• email; or
• posting a notice on the door of the rental unit.

The notice needs to include the following information, in non-technical language:

• identification of the pest(s) to be controlled;
• the name and brand of pesticide; and
• the following statement:

State law requires that you be given the following information:
CAUTION—PESTICIDES ARE TOXIC CHEMICALS. The California Department of Pesticide Regulation and the United States Environmental Protection Agency allow the unlicensed use of certain pesticides based on existing scientific evidence that there are no appreciable risks if proper use conditions are followed or that the risks are outweighed by the benefits. The degree of risk depends upon the degree of exposure, so exposure should be minimized.

If within 24 hours following application of a pesticide, a person experiences symptoms similar to common seasonal illness comparable to influenza, the person should contact a physician, appropriate licensed health care provider, or the California Poison Control System (1–800–222–1222).

For further information, contact any of the following: for Health Questions—the County Health Department (telephone number) and for Regulatory Information—the Department of Pesticide Regulation (916–324–4100).”

Pesticide application in individual units

For landlord-applied pesticides in individual rental units, the following disclosures are added to the written notice:

• the approximate date, time and frequency of application; and
• the following statement:

The approximate date, time, and frequency of this pesticide application is subject to change.”

If the pesticide is an aerosol or fogger which spreads over more than two feet and impacts adjacent units, the landlord is also required to provide the notice to the tenants of any impacted units.

After receiving the notice, the tenant of the affected unit may give written consent to immediate application of the pesticide, or agree to application at a set time.

Tenant-initiated requests

If the tenant initiates a request for immediate application of a pesticide in an individual rental unit before 24-hour advance notice can be given, the landlord may apply the pesticide if they:

• orally notify the tenant of the name and brand of pesticide used before applying the pesticide;
• provide the written notice to any impacted adjacent tenants before or at the time the pesticide is applied; and
• post the written notice in a conspicuous place in the rental unit or on the door of the unit at the time the pesticide is applied.

Pesticide application in common areas – one time or limited applications

For landlord-applied pesticides in common areas, the written notice needs to be posted in the common area before application and remain posted for at least 24 hours after the application of the pesticide. The written notice for a one-time or limited application of landlord-applied pesticides in a common area needs to include the approximate date, time and frequency of application.

Landlords are not responsible for notices taken down without their consent or knowledge.

If no suitable place is available in the common area, the landlord needs to deliver individual written notices to all tenants.

If immediate pesticide application is necessary, landlords may post the notice as soon as possible, but no later than one hour after pesticide application.

Pesticide application in common areas – set schedule

If the landlord applies pesticides to a common area on a set schedule, the written notice is delivered to:

• existing tenants before pesticide application; and
• new tenants before entering a lease agreement.

The written notice for pesticides applied by the landlord on a set schedule needs to include the schedule of pesticide application. A change in the pesticide used triggers a new written notice to all tenants.

Editor’s note – This bill does not require a nonprofit or unincorporated association created for the purpose of managing a common interest development (CID) to provide notice of pesticide use in separately owned units, lots, parcels or spaces, or common areas within a CID.

Read bill text.

Related topics:
landlords,

Posted by Sarah Kolvas | Aug 19, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: An owner of a commercial property pays all operating costs and property taxes from the property’s rental income. The economic recession occurs and the owner is unable to pay property taxes through either their income or capital from their single asset due to loss of rental income. A buyer later purchases the property and assumes liability for all unpaid property taxes, along with penalties assessed by the tax collector for failure to make timely payments.

Claim: The buyer seeks to have the penalties waived by the tax collector, claiming the buyer meets the statutory conditions for cancellation of penalties since the previous owner’s failure to pay property taxes was caused by the economic recession and is thus considered reasonable cause and circumstances beyond the owner’s control.

Counter claim: The tax collector claims the buyer is ineligible for cancellation of the penalties since the statute does not apply to a failure to pay property taxes due to economic conditions or financial hardship.

Holding: A California court of appeals holds the buyer is not entitled to a cancellation of penalties for delinquent property taxes since the statute only applies to reasonable cause and uncontrollable circumstances that prevent actual delivery of timely payments and does not encompass the economic recession or the single-asset ownership structure that compromised the previous owner’s financial ability to pay. [Ashlan Park Center LLC v. Vicki Crow (February 2, 2015)_CA4th_]

Read the case text.

Related topics:
economic recession, property taxes

Posted by Whitney Trang | Aug 7, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A developer owns a vacant parcel of land next to a highway and submits a proposal for a development project to the city. The city has plans to reconstruct the highway, which requires the acquisition of a portion of the developer’s land. However, the city’s highway reconstruction project is postponed due to lack of funding. The city approves the developer’s proposal on the condition the developer reserves the land to be later used for the highway reconstruction project citing eminent domain. The developer refuses to change their plans.

Claim: The developer seeks money losses and to build on the entirety of their property, claiming the city’s condition to set aside a portion of their land to the highway reconstruction project is unlawful taking of their property since the city has not yet compensated them for the land.

Counterclaim: The city seeks to have the developer set aside a portion of their land for the future project, claiming the city is entitled to reserve and use the land for an impending highway reconstruction project since the power of eminent domain allows it to take private land for public use.

Holding: The California court of appeals holds the developer is entitled to money losses and has the right to build on the entirety of their property since the city’s condition of setting aside a part of the developer’s land without giving compensation results in an unlawful taking of the developer’s land. [Jefferson Street Ventures, LLC v. City of Indio (May 19, 2015) ____CA4th______]

 

Read the text of the case.

Related topics:
eminent domain, development project, developer, city, public works project

Posted by Carrie B. Reyes | Aug 29, 2015 | Buyers and Sellers, Property Management | 0

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

Over 800 residential methamphetamine (meth) labs have been reported in California since 2004, according to the real estate reporting service, Housefax. The counties with the largest number of meth labs were:

• San Bernardino, with 109;
• Los Angeles, with 97; and
• Riverside, with 68 meth labs reported over the past decade.

Half of residential meth labs are found on rental property, according to San Diego County’s Department of Environmental Health.

Operating a meth lab is a criminal offense punishable by significant jail time. [Calif. Health & Safety Code §11397.6]

Additionally, landlords, property owners, agents, employees, mortgagees or renters who knowingly rent out, lease or sublease a space which will be used to manufacture or store methamphetamines are subject to criminal prosecution.

Basically, if an individual knowingly arranges for space to be available to other individuals who will manufacture or store methamphetamine, the person in-the-know faces imprisonment of up to one year upon the first offense. [Health & S C §11366.5(a)]

A notice to quit for unlawful activity

If a landlord unknowingly leases their property or mobilehome to tenants, and later discovers the tenants are using the property to store or manufacture methamphetamines, the first thing they need to do is contact the police. The landlord should not attempt to inspect the property on their own, since:

• the landlord may only enter the unit to provide necessary repairs, show the property to potential tenants, in case of emergency or with a court order [Calif. Civil Code §1954]; and
• individuals exposed to methamphetamines can be unstable, unpredictable and possibly violent.

If the tenant is in fact operating a meth lab, the landlord may serve the tenant a three-day notice to quit, as they violated the lease by using the property for unlawful activity. [CC §1161; See first tuesday Form 577]

The landlord needs to arrange for clean up

Once it’s been determined a property has been used to store or manufacture methamphetamine, it’s the landlord’s responsibility to arrange for certified clean up. [Health & S C §25400.11(l); §25400.17(c); §25400.20(e)]

The Methamphetamine Contaminated Property Cleanup Act of 2005 requires former meth labs be cleaned by an authorized and certified contractor who has undergone the proper training for disposal and clean up of hazardous materials. [Health & S C §25400.40]

Once it’s determined that the property is contaminated, the landlord has 30 days to retain the services of an authorized contractor. [Calif. Health & S C §25400.25(c)]

The landlord and their authorized contractor need to make a preliminary site assessment (PSA) plan to clean up the former meth lab site. This needs to be submitted to the local health officer within 30 days of demonstrating the landlord’s retention of the authorized contractor’s services. [Health & S C §25400.26(c)]

As soon as the local health officer approves the PSA plan, the landlord needs to complete the clean up within 90 days. Once the local health officer determines the property has been properly cleaned and has fully met the details of the PSA plan, the officer will notify the landlord that no further action is needed. [Health & S C §25400.26(f); §25400.27(a)]

Once the meth lab site is cleaned, the surfaces are tested for methamphetamine levels. To be safe for habitation, the level of methamphetamine cannot exceed 1.5 micrograms per 100 square centimeters. [Health & S C §25400.16(a)]

Finally, after the property has been cleaned and is again suitable for habitation, the landlord needs to keep records of the decontamination for at least three years. [Health & S C §25400.26(b)]

Landlords who do not comply with meth lab clean up laws may be fined up to $5,000 for each infraction. [Health & S C §25400.45]

Methamphetamine: the real estate effect

If the landlord leases or sells the property or mobilehome where meth lab activity has taken place before the local health officer notifies them that no further action is required, the landlord needs to disclose the presence of the former meth lab to potential buyers and/or tenants. This disclosure needs to be provided and acknowledged in writing. If the notice is not provided in writing, the tenant or buyer may void the lease or sale agreement. [Health & S C §25400.28]

This is unlucky for sellers, as former meth labs reduce the home’s selling price an average of 20%. What’s more, homes nearby former meth labs also experience decreased selling prices of around 20%, according to Housefax.

However, once the officer deems the property safe for habitation, the landlord is not required to notify future sellers or tenants of the former meth lab. A property research service like Housefax can tell buyers if local law enforcement has reported a meth lab on a property.

If the affected property is an apartment unit the local health officer may determine more than a single unit or living space is contaminated. Thus, more than one unit may be displaced.

The local health officer posts a notice in a prominent place on the property that a meth lab was seized. If the meth lab was found in an apartment building, this notice will include the effected unit number. The notice also prohibits anyone from entering the effected portion of the property until the local health officer or designated local health agency advises it is safe to enter. [Health & S C §25400.18]

Screen to reduce the risk of criminal activity

If a tenant operates a meth lab on the property, there’s not much the landlord can do after the fact except comply with clean up and disclosure requirements, even though this decreases the property’s attractiveness. The best thing landlords can do to is be proactive from the start and properly screen all potential tenants.

To reduce the risk of a tenant using the property for unlawful activity, screen each tenant by asking about:

• income;
• employment;
• past evictions; and
• references from their previous landlords.

Landlords need to ask all tenants the same questions to avoid claims of unfair treatment or housing discrimination. Landlords who use a credit report to screen potential tenants should follow these tenant screening rules.

Related topics:
disclosures

Posted by Sarah Kolvas | Nov 30, 2015 | Laws and Regulations, Property Management, Real Estate, Recent Case Decisions | 0

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

Long Beach Brethren Manor v. Leverett

Facts: A tenant and landlord enter into a U.S. Department of Housing and Urban Development (HUD) rental agreement. The agreement prohibits the tenant from disturbing the rights and comforts of other tenants. Additionally, it permits the landlord to terminate the tenancy on the tenant’s material breach by providing either a 30-day notice for terminations due to good cause or the statutory notice required by state law for material breaches, “whichever is later.” The tenant breaches the agreement by engaging in altercations with other tenants. The landlord serves the tenant with a ten-day notice to quit instead of the minimum three-day notice as required by state law to allow the tenant additional days to vacate. The tenant refuses to vacate and the landlord files an unlawful detainer (UD) action.

Claim: The tenant seeks to invalidate the UD action, claiming the UD action is not enforceable since the landlord failed to provide adequate notice as the rental agreement requires the landlord to use the 30-day notice to provide the tenant a later date to vacate.

Counter claim: The landlord claims the UD action is enforceable since the landlord provided more than the minimum notice required by state law, which meets the requirements of the agreement.

Holding: A California superior court holds the UD action is unenforceable since the landlord did not provide adequate notice to the tenant, as the rental agreement requires the landlord to use the 30-day notice to provide the tenant with a later date to vacate than the statutory three-day notice to quit. [Long Beach Brethren Manor v. Leverett (August 3, 2015)_C4th_]

Read case text here.

Related topics:
department of housing and urban development (hud), material breach, notice to quit, rental agreement, unlawful detainer (ud)

Posted by Whitney Trang | Sep 3, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

[T & A Drolapas & Sons, LP v. San Francisco Residential Rent Stabilization and Arbitration Board ___CA4th ____]

Facts: A couple and their children occupy a rent-controlled apartment as tenants. Many years later, the couple moves out, yet the eldest child, now an adult, continues to occupy the apartment and pays rent. The landlord sends a notice of a rent increase to the tenant.

Claim: The tenant seeks to avoid the rent increase, claiming it is unlawful for the landlord to raise the rent on their rent-controlled apartment since the tenant’s child is an original occupant under the rental agreement and remains in possession of the unit.

Counterclaim: The landlord seeks to raise the rent claiming the rent increase is permitted since the tenant who signed the rental agreement no longer occupies the apartment and the tenant’s child is not an original occupant under the rental agreement.

Holding: A California court of appeals holds the landlord may not raise the tenant’s rent since the tenant’s child is an original occupant as they resided in the apartment with their parents under the rental agreement and continued to reside there after their parents vacated, thus affording them protection under the local rent control ordinance. [T & A Drolapas & Sons, LP v. San Francisco Residential Rent Stabilization and Arbitration Board ___CA4th ____]

Read the text of the case.

Related topics:
landlord, tenant, rent, rent control

Posted by Whitney Trang | Oct 5, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

[DKN Holdings, LLC. v. Faerber___C4th___]

Facts: Two co-tenants rent a commercial space. The lease agreement signed by both tenants makes them jointly and severally responsible for complying with the terms of the lease. The co-tenants default on their rent payment and the landlord sues for unpaid rent against one of the co-tenants, but not the other tenant who was dismissed in a prior judgment. The landlord is awarded money losses in a settlement with the first co-tenant.

Claim: The landlord seeks the same money losses from the second co-tenant, claiming they are also responsible for paying the landlord the unpaid rent since the tenants were equally responsible for the lease and the second co-tenant was not included in the case against the first co-tenant.

Counter claim: The second co-tenant claims the landlord is barred from pursuing the same money losses against them since the landlord was awarded money losses in the case against the first co-tenant.

Holding: A California Supreme Court holds the landlord may seek money losses against the second co-tenant since the tenants were severally and jointly liable for the lease and the awarding of money losses from the first co-tenant does not bar the landlord from seeking money losses from the second co-tenant, who was not part of the case against the first co-tenant. [DKN Holdings, LLC. v. Faerber___C4th___]

Read the text of the case.

Editor’s note – This case was also tried at the appellate level where the opposite conclusion was reached. Upon further examination of the legal doctrine res judicata, the California Supreme Court determined it only barred claims between same parties. Since the second co-tenant was not part of the first case and entered into a jointly and severally liable lease, the landlord is permitted to seek money losses from them in a separate case. However, the landlord to be efficient, needed to include all tenants responsible for the rent in the first action to avoid a second action. The landlord may only collect money losses once — the complete amount from one co-tenant or the amount as divided among the two co-tenants. 

Related topics:
landlord, tenant, severally and jointly liable, dkn holdings, inc. v. faerber, res judicata

Posted by ft Editorial Staff | May 7, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A trustee is appointed to manage an estate in bankruptcy and auctions a property held by the estate. A creditor with a lien on the property acquires the property through a credit bid. The trustee then petitions for compensation in an amount that includes the value of the credit bid, but a Bankruptcy Appellate Panel (BAP) only grants them compensation based on the amount of money the trustee disbursed and not the value of the credit bid.

Claim: The trustee seeks compensation that includes the value of the credit bid for the property, claiming they are legally entitled to calculate their compensation based on the total value including the credit bid since the statute permitting a trustee’s compensation for “moneys” disbursed is ambiguous and may be interpreted to apply to the disbursement of all assets, including real property turned over to the creditor.

Counter claim: The BAP claims the trustee is not entitled to compensation based on the value of the credit bid for the property since the statute entitles trustees to earn compensation based specifically on “moneys” disbursed, which does not include real property by definition.

Holding: A California court of appeals holds the trustee is not entitled to compensation based on the value of the credit bid for the property since the statute controlling trustee compensation only allows for compensation based on actual moneys disbursed and does not encompass real property turned over by the trustee through a credit bid. [In re: Hokulani Square, Inc. v. United States Trustee (January 26, 2015)_CA4th_]

Read the case text.

Related topics:

Posted by Whitney Trang | Jul 24, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: An absentee owner of a property in a common interest development (CID) managed by a homeowners’ association (HOA) rents out their property to short-term vacation renters. Additional fees and rules for absentee owners are not included in the HOA’s covenants, conditions and restrictions (CC&Rs), but later adopted by the HOA. The absentee owner refuses to pay the fees and abide by the new rules.

Claim: The absentee owner seeks to avoid payment of the fees claiming the new HOA fees and rules may not be enforced since they were not in the CC&Rs.

Counterclaim: The HOA seeks collection of the unpaid fees and compliance with its new rules by the absentee owner, claiming the HOA may impose the fees and rules since the CC&Rs authorize them to create and adopt fees and rules that benefit the CID.

Holding: A California court of appeals holds the HOA may impose additional fees and rules on the absentee owner since nothing in the CC&Rs disallows the HOA to create or enforce new fees and rules for short-term rentals. [Watts v. Oak Shores Community Association (March 24, 2015) ___ CA4th ________ ]

 

Read the text of the case.

 

Related topics:
hoa, covenants, conditions and restrictions (cc&rs), absentee owner, short-term vacation rentals, recent case decision

Posted by Amy Thomas | Oct 23, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Minnick v. Commissioner of Internal Revenue

Facts: An owner obtains a mortgage secured by an undeveloped plot of land, intending to use the funds for development. The owner later donates a conservation easement on a portion of the land subject to the mortgage to a conservation agency. The owner does not inform the mortgage holder of the easement and claims a charitable deduction for the donation on their tax return. The Internal Revenue Service (IRS) issues a notice of deficiency rejecting the charitable deduction claim since the mortgage was not subordinated. The owner enters into a subordination agreement with the mortgage holder after receiving the deficiency notice.

Claim: The owner seeks to avoid the deficiency for the charitable deduction, claiming the eventual subordination agreement with the mortgage holder satisfies the subordination requirement for the conservation easement regardless of when the easement was donated.

Counterclaim: The IRS claims the owner is not entitled to the charitable deduction and needs to pay the deficiency since the mortgage was not subordinated to the conservation easement at the time of donation, which threatens the perpetual preservation of the easement.

Holding: A California court of appeals holds the owner is not entitled to the charitable deduction for the donation and is obligated to pay the deficiency since the mortgage was not subordinated to the conservation easement at the time of donation as required to perpetually preserve the easement. [Minnick v. Commissioner of Internal Revenue (2015) 796 F3d 1156]

Read the text of the case.

Related topics:
internal revenue service (irs)

Posted by Amy Thomas | Dec 21, 2015 | Laws and Regulations, Real Estate, Recent Case Decisions | 1

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

Mak v. City of Berkeley Rent Stabilization Board

Facts: The owner of a rental property serves a 60-day notice to vacate to a tenant stating the owner intends to occupy the unit. The property is subject to a local rental ordinance which prohibits owners from charging new tenants a higher rental rate if the prior tenant vacates as a result of the owner’s intent to occupy. The ordinance also requires an owner to prove the prior tenant vacated for reasons other than the termination notice related to the owner’s intended occupancy in order to increase the rental rate for a new tenant. On the last day of the tenant’s occupancy, the owner withdraws the termination notice and offers the tenant cash consideration to vacate. The tenant accepts and signs an agreement stating they are not vacating the unit due to the owner’s notice of their intent to occupy. The owner does not occupy the unit. Several months later, the owner rents the unit to a new tenant and charges a higher rental rate than the previous tenant. The new tenant applies to the local Rent Stabilization Board (the Board) to force the owner to lower their rent.

Claim: The owner claims the Board may not force them to lower the new tenant’s rent since the previous tenant signed an agreement stating they voluntarily vacated the unit and did not vacate due to the termination notice, and thus the owner is entitled to charge the new tenant a higher rental rate.

Counterclaim: The Board seeks to limit the new tenant’s rent to the same amount as the prior tenant, claiming the owner failed to disprove the prior tenant vacated the property as a result of the termination notice and thus the owner may not charge the new tenant a higher rental rate.

Holding: A California court of appeals holds the Board may force the owner to limit the new tenant’s rental rate to that of the prior tenant since the termination notice pursuant to the owner’s intent to occupy resulted in the tenant vacating the property and the owner failed to prove the notice was not cause for the tenant to vacate. [Mak v. City of Berkeley Rent Stabilization Board 240 CA4th 60]

Editor’s note – The local rent ordinance in the case above stipulates that if a tenant vacates a property within one year of the issuance of a termination notice stating the owner’s intent to occupy the unit, the legal presumption is the tenant vacated the unit due to the termination notice – even if the notice is later withdrawn by a written agreement. An owner may prove the termination notice did not cause the tenant to vacate by requesting a Certificate of Permissible Rent Level and following the proper legal channels to obtain higher rent.

However, if the owner fails to follow the proper procedure for obtaining permission from the rent board to charge a new tenant a higher rental rate, as in the case above, the legal presumption in the rent ordinance stands. [Berkeley Rent Stabilization Board Regulation 1016]

Read the text of the case.

Related topics:

Posted by Whitney Trang | Aug 25, 2015 | Laws and Regulations, Licensing and Education, New Laws, Real Estate | 2

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

Calif. Business and Professions Code § 10170.5

Amended by A.B. 345

Effective date: January 1, 2016

California Bureau of Real Estate (CalBRE)-licensed brokers now need to complete a course in office management and supervision as part of their 45-hour continuing education requirements.

Brokers renewing their license for the first time need to take a three-hour course on office management and supervision. For subsequent license renewals, brokers may take either:

• the full three-hour office management and supervision course; or
• an eight-hour survey course which includes office management supervision.

Editor’s note — A broker whose CalBRE license expires after January 1, 2016 will be required to take the three-hour office management and supervision course to renew their license. first tuesday is in the process of having our three-hour course approved with CalBRE. If you already took your continuing education with first tuesday for your 2016 renewal, the three-hour course is free. We’ll notify affected students once the course is approved and ready!

Read the bill text.

Related topics:
a.b. 345, continuing education requirement, brokers, calbre, office management, broker’s license, renewal, renewing broker’s license

Posted by Whitney Trang | Aug 28, 2015 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Government § 8627.7
Added by A.B. 1
Effective date: January 1, 2016

During state-declared drought emergencies, cities and counties may not impose fines on homeowners who have unwatered or brown lawns.

Read the bill text.

Related topics:
drought, local government, fines, conserving water, water, resources, brown lawns

Posted by Sarah Kolvas | Oct 6, 2015 | Laws and Regulations, Pending Laws, Reader Polls, Real Estate | 1

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

Recently, Assembly Bill 1545: the State of California Housing Agency Act (AB 1545) was introduced in the California legislature by 44^th District Assemblymember Jacqui Irwin (Democrat). The bill proposes to create a Housing Agency – separate from Business and Consumer Services – to oversee the California Bureau of Real Estate (CalBRE) and other housing-related departments, such as the Department of Housing and Community Development (DHCD) and the Contractors’ State License Board.

AB 1545 also creates the Department of Real Estate Finance within the Housing Agency, which will assume the administration of:

• the Real Estate Appraiser’s Licensing and Certification Law;
• the Escrow Law;
• portions of the California Finance Lenders law relating to mortgage originations, home purchases and refinancing;
• the California Residential Mortgage Lending Act;
• laws regarding title and mortgage insurance; and
• laws controlling the activities of home warranty companies.

Transferring authority to the new department effectively consolidates responsibility for all real estate financing matters in a single department.

Additionally, the bill proposes to redesignate CalBRE as the “Department of Real Estate,” reverting to its original title prior to the renaming in 2013 – a disruption that will no doubt burden real estate licensees who will need to adapt to yet another trivial name change.

A waiting game for details

AB 1545 was only recently introduced on August 20, 2015 and has yet to be heard in committee. Minimal information about the purpose and origins of the bill is available at this time. Sources are basically non-responsive.

first tuesday has probed some key sources about AB 1545 to determine how its contents may impact our readers. Assemblymember Irwin was not available by phone and has not yet responded to questions about the bill’s creation. The DCA, speaking on behalf of CalBRE, has not taken a position on AB 1545 and was unable to provide further information about its provisions or effect on CalBRE.

What do we know about AB 1545? The bill is being sponsored by the California Association of Realtors (CAR). Further and perhaps unsurprisingly, Assemblymember Irwin who introduced the bill has received ample funding from CAR in the past. According to Voter’s Edge, CAR was one of the top five contributers for Irwin during elections in 2014.

It is well known that CAR’s arm reaches beyond its trade union members and into the California legislature, a result of extensive lobbying and funding provided by increases to membership dues. AB 1545 may well be a case of CAR’s power and legislative connections at work to further their own as-yet-unknown agenda.

But is this bill necessary or useful? On one hand, streamlining the administration of financing and mortgage origination laws may provide more focused and effective oversight. On the other hand, the creation of additional departments further complicates the state’s government and contributes to the confusing compartmentalization of California’s administration.

The renaming of CalBRE back to its original title of “DRE” is also more wasteful and confusing than it is beneficial to the state or real estate licensees – as was the change from “DRE” to “CalBRE” two years ago. Reversing the change now does nothing to avoid complications for brokers and agents. If passed, expect to revisit the burdensome process of adapting to a new title and conforming related documents and marketing as needed.

Is this bill proposing positive changes for the CalBRE and California? Let us know what you think or know about CAR’s intentions in the comments!

Related topics:
california association of realtors (car), california legislation, department of real estate (dre)

Posted by Amy Thomas | Nov 11, 2015 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Revenue and Taxation Code §§463 and 483
Amended by A. B. 571
Effective date: January 1, 2016

An owner of real estate is subject to penalties for failing to properly and timely file a change of ownership statement or annual property statement. The owner may now receive a penalty abatement judgment for their failure to timely file if they prove the failure was due to reasonable causes beyond their control.

Editor’s note – This bill does not provide substantial changes to existing law. Instead, it is intended to ensure penalty abatement is applied with equal standards to various property tax provisions.

Read the bill text.

Related topics:

Posted by ft Editorial Staff | Dec 21, 2015 | Finance, Laws and Regulations, Reader Polls, Real Estate | 1

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

Related articles:

Questions about the new closing disclosures? CFPB has answers.

CFPB explains closing disclosures for your clients

Will the CFPB’s new disclosure rule delay closings?

Related topics:
respa, tila, trid

Posted by Sarah Kolvas | Jan 9, 2015 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Labor Code §§245, 245.5, 246, 246.5, 247, 247.5, 248.5, 249 and 2810.5
Amended and added by A.B. 1522
Effective date: July 1, 2015

An employee who works at least 30 days within a year from their employment date is entitled to paid sick leave.

Upon the employee’s oral or written request, an employer is to provide paid sick leave for:

• diagnosis, care or treatment of existing health conditions or preventative care for an employee or their family member; and
• treatment, shelter, counseling or legal assistance for employees who are victims of domestic violence, sexual assault or stalking.

Sick leave accrues at a rate of at least one hour per every 30 hours worked. Employees may begin using their accrued paid sick leave on the 90^th day of employment.

Any unused paid sick leave is to carry over to the next year, but an employer may limit the use of paid sick leave to 24 hours or three days per year. Employers may cap accrual at 48 hours or six days per year.

An employer is not required to compensate an employee for unused paid sick leave upon the employee’s termination, resignation or retirement. However, if an employee ends their employment and is rehired within a year, their previously accrued and unused paid sick leave is to be reinstated.

The employer has the discretion to “lend” paid sick leave to an employee in advance of accrual.

The employer is required to state the amount of paid sick leave available or paid time off on:

• the employee’s itemized wage statement; or
• in a separate writing provided on the pay date.

Employers may set a minimum increment for the use of paid sick leave, not to exceed two hours. The employer is to pay the employee for paid sick leave by the next regular payroll period following the sick leave. The amount paid is based on the employee’s regular hourly rate. However, if the employee is paid by commission or piece rate, the rate of pay for sick leave is calculated by dividing the employee’s total wages – not including overtime premium pay – by the employee’s total hours worked in the full pay periods of the prior 90 days of employment.

An employer is not required to provide additional paid sick leave if the employer already offers a paid time off policy which:

• satisfies the above accrual, carry over and use requirements; or
• provides at least 24 hours or three day of paid sick leave, or equivalent paid time off, for employee use every year of employment, calendar year or 12-month period.

An employer may not require an employee to find a replacement worker to cover their time off, or discharge, demote, threaten or discriminate against an employee for using paid sick leave.

The employer is required to display in their workplace a poster created by the Labor Commissioner which states:

• employees are entitled to accrue, request and use paid sick leave;
• the amount of sick leave provided;
• the terms of use for paid sick leave; and
• that retaliation or discrimination against an employee requesting paid sick leave is prohibited and the employee has the right to file a complaint.

An employer is also required to keep and make available to the employee at least three years’ records documenting the hours worked and paid sick days accrued and used by the employee.

Additionally, employers are to include in written employment information given to new hires:

• a statement that the employee is entitled to accrue, request and use paid sick leave;
• notification that the employee may not be terminated or retaliated against by the employer for using or requesting accrued paid sick leave; and
• a statement that the employee has the right to file a complaint against a retaliating employer.

Penalties for violations

An employer who does not display the required poster is subject to a civil penalty of $100 per offense.

If an employer unlawfully withholds paid sick leave, they are subject to a penalty equal to the greater of:

• the dollar amount of paid sick leave withheld, multiplied by three, up to $4,000; or
• $250.

If their violation results in harm to the employee, such as discharge, the penalty may include a sum of $50 for each day of the violation, not to exceed an aggregate $4,000.

The Labor Commissioner may file a civil action against the employer to enforce compliance.

Editor’s note — Most employing brokers hire licensees under independent contractor agreements. The new paid sick leave laws do not apply to independent contractors.

However, brokers and agents may opt to enter into an employer/employee relationship. In that case, employed licensees are entitled to paid sick days. Additionally, real estate brokers are subject to these new requirements for any non-licensed assistants or administrative staff they employ. No de minimis exemptions exist for small employers.

Read more:

Read the bill text.

Related topics:

Posted by Amy Thomas | Aug 28, 2015 | New Laws, Real Estate | 0

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

10/17/2016: Some of the information in this article has been updated by a new law. To see the new law, click here.

Calif. Business & Professions Code §§10159.5. 10159.6, 10159.7
Amended by S. B. 146
Effective date: July 16, 2015

Fictitious business names

A salesperson may file for and maintain a fictitious business name with the authorization of their employing broker.

In addition to the saleperson’s license number and name, all advertising and solicitation materials using the salesperson’s fictitious business name now need to include the employing broker’s license number and the name associated with that license number in CalBRE records.

Team names

All advertising and solicitation materials using a team name need to include:

• the license number and name of at least one licensed member of the team; and
• the employing broker’s license number and the name associated with that license number in CalBRE records.

Read more:
Read the bill text.

Related topics:
team names

Posted by Carrie B. Reyes | Aug 31, 2015 | Buyers and Sellers, Feature Articles | 1

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

California’s ongoing drought casts a shadow over future home sales. Should buyers be worried about the future of the Golden State?

This article is the first in a three-part series on the effect of natural disasters on California home sales.

Drought: past and future

2012-2015 have been the driest years on record in California, according to Save Our Water, a state-sponsored water use program.

Most climate models point to a drier climate in the coming decades, with temperatures likely averaging four-five degrees warmer (Fahrenheit) by 2100. Hotter temperatures mean less winter snow, which supplies a third of California’s water supply in a regular, non-drought year. Thus, it’s important for residents to learn to live with less water now, since drought conditions are essentially guaranteed to continue in the long run.

Will California’s drought dry up the housing market?

While water is becoming more scarce, California’s population is continually growing. As our cities and farms put ever more strain on our increasingly limited water supply, the drought has crept into every corner of our lives. Water prices are rising, lawns go brown and doomsday scenarios are played out on the television and radio.

Choosing to buy a house in the midst of this record-breaking drought seems short-sighted to many and plain crazy to some. After all, what will the homebuyer do if their (proverbial or literal) well dries up?

However, unless the homeowner lives in a rural location, it’s extremely unlikely they’re going to lose water completely. The vast majority of Californians reside in metropolitan areas, where water use is less and systems for delivery are more efficient. In fact, even though the population continues to grow, total residential water use in metropolitan areas has actually decreased since peaking in 2007, according to the Los Angeles Department of Water and Power.

That being said, it is possible that rural communities will see a general decline in property values as buyers grow concerned about the ability — or increased cost — of obtaining water, particularly for rural homes with large amounts of land to water. But the majority of homes won’t experience a loss in property values due to the drought.

The burden of rising water costs

What most California homeowners can expect, however, is a steady increase in water costs. California legislators have responded to today’s drought by introducing a combination of fines and rebates to encourage more efficient water use.

Water departments across the state have added “drought fees” and have plans in place to increase rates in 2016. But it’s not just to encourage residents to conserve water.

It’s more about water suppliers trying to stay afloat and make up for money lost in the drought. That’s because residents are using less water in the drought and therefore paying less money to the water suppliers. But the suppliers still have to service their delivery systems and pay their employees, so increased rates are the natural solution.

Further, don’t expect these increased rates to go away anytime soon — they’re here to stay, and will only increase in the coming years.

Most city residents have small or no outdoor space, which is where the bulk of water use occurs. In fact, the drought may cause homes with small or no yard space to become especially attractive. As more of the state shifts from the expansive lawns of the suburbs to the more contained landscaping of cities, water use will decrease further, and rates will by necessity continue to rise. This won’t be a major problem for those with little outdoor space, but for those stuck in the suburbs or in rural parts of the state, rising water costs will be an ever-increasing burden.

Lawn/pool removal rebates

One way California aims to reduce water use is essentially bribery: homeowners who update their water system receive money from the state.

California offers rebates for replacing lawns and appliances with more water-efficient options. However, like most state-run programs, actually receiving these rebates can be a hassle. Residents complain of backlogs, hidden restrictions and long waits on the phone.

An example of some of the rebates available across California include:

• statewide, the Department of Water Resources (DWR) offers up to $2 per square foot of turf removal if replaced with low water-use landscaping;
• statewide, the DWR offers a rebate of up to $100 to replace an old toilet with a certified high-efficiency toilet;
• in Santa Clara County, $2 per square foot for water-inefficient landscape removal, including pools and lawns;
• in participating water districts of Southern California, rebates starting at $85 to purchase a qualifying energy efficient clothes washer are available;
• in Beverly Hills, Anaheim, Los Angeles and commercial customers in Long Beach, lawn removal rebates are offered at varying rates;
• in participating water districts of Southern California, rebates start at $100 to replace a low-efficient toilet with a high-efficient toilet; and
• in participating water districts of Southern California, rebates start at $80 to install a weather-based irrigation controller, soil moisture sensor system, and $75 per rain barrel.

Homeowners can search for more local water rebate programs here.

Rebate funds have already been exhausted in much of Southern California. However, homeowners can add themselves to a waitlist and be notified when more funds become available in Fall 2015. It’s important to note that in order to remain eligible for the turf-removal program, homeowners may not start the turf removal process until they have been notified of being moved off the waitlist and received approval for the rebate program. To get on the waitlist for the Metropolitan Water District of Southern California, homeowners can apply here.

Homeowners overwater at their own discretion

In April 2015, Governor Brown issued an executive order calling for a 25% reduction in non-agriculture water use by February 2016. This executive order also directs:

• property owners to refrain from using potable water on the lawns of newly constructed homes unless they use drip or microspray systems;
• water suppliers to change their rate structures (read: increase rates) to encourage water conservation by property owners; and
• farm owners to develop and submit water management plans to the Department of Water Resources.

On a smaller scale, neighborhoods have begun to develop cultures of paranoia when it comes to water use. It’s called public drought shaming. On the one hand, it helps homeowners stop wasteful watering practices, but on the other, it creates rifts amongst neighbors. Drought shamers report homeowners or business that waste water, particularly those who hose down sidewalks or overwater their lawns, causing runoff. (There’s even an app for it.)

And if being publicly shamed for water waste isn’t enough, California may fine property owners up to $500 a day for water waste. Specifically, homeowners are prohibited from:

• hosing off sidewalks and driveways with potable water;
• washing cars without using a water shutoff nozzle;
• over-watering lawns, causing runoff onto the sidewalk or street; and
• using potable water in outdoor, non-circulating water features.

The threat of fines will certainly deter homeowners from overwatering, which is important since about half of water-use per household goes into outdoor projects like landscaping.

However, the biggest user of water in the state is the agriculture industry. Agriculture consumes 80% of California’s useable water supply and residents along with towns and cities consume 20%.

That’s not to suggest that reducing residential water waste isn’t important, it’s just not as important as regulating agricultural water use. For a solution, researchers tend to look to long-time drought survivor, Australia. There, farmers are allotted water shares, which they can trade with other famers in a water market, similar to how shares are traded on the stock market.

Further, Australia’s fervent campaign against water waste has regular residents using half of what the average California resident uses.

Selling a home in the drought

The drought causes a particular issue for home sellers. Buyers aren’t lured by brown lawns or empty swimming pools. What’s a seller to do?

If the seller has a pool, removing it will usually help the home sell faster. Most buyers don’t want to deal with the cost of maintenance or the social burden of all that water in their backyard during a drought. But pool removal is very expensive, costing upwards of $10,000 to do it right. But if a seller’s home is sitting on the market for some time with no reasonable offers, pool removal may be something the seller considers.

For other landscaping, it all depends on what the seller is starting with. If they have grass, they can water it — carefully avoiding overwatering — sufficient to keep the grass some shade of green. A brown lawn can cost the seller thousands in the eventual sale price, as buyers assume the seller is neglectful not just of their lawn but their home, too.

Editor’s note — During state-declared drought emergencies, local governments cannot impose fines on homeowners who have unwatered or brown lawns. [Calif. Government Code §8627.7]

Better, a seller can consider installing drought-friendly plants. This includes succulent plants, rocks and cacti. There are also some nice flowering desert plants they can plant, like desert mallow and desert marigold. For a handy list tailored specifically for agents to download and distribute to real estate clients, see: Save on your water bills with hardy native landscaping.

Another option: the seller can tear up the old lawn and install artificial turf. However, this is not ideal for all buyers, as it requires maintenance and isn’t tasteful to everyone. This is a better option for a homeowner who likes the look of grass but not the cost of watering, and plans to live in their home for a while. Here’s a pro and con list to decide whether artificial turf is the right decision for your real estate clients: Should you install artificial turf?

Agents with buyer clients: Are homebuyers concerned about the drought’s effect on their home purchase and has it affected what types of properties they’re interested in? Share your stories in the comments below!

Stay tuned for the next article in this series, which will explain how sea level rise will influence the future of California real estate.

Related topics:
california home values, drought

Posted by Carrie B. Reyes | Oct 16, 2015 | Buyers and Sellers, Feature Articles | 3

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

How will sea level rise influence California’s coastal real estate markets in the coming years? Should homebuyers beware?

This article is the second in a three-part series on the effect of natural disasters on California’s real estate market. For Part I of the series, see: Drought.

Sea level rise threatens coastal homes

Rising sea levels threaten California’s coastline through:

• coastal flooding, particularly damaging during storms; and
• erosion, causing vanishing shorelines.

Over the past century, oceanographers in the Bay Area have measured an 8-inch sea level rise. However, the next 100 years are anticipated to see sea levels rise by four-to-five feet along California’s coastline, affecting 480,000 people and endangering property valued over $100 billion. This is under a medium-to-medium-high greenhouse gas scenario, according to the Pacific Institute.

Of course, much of California’s shoreline is located along cliffs and dunes, rising well above sea level. So, four or five feet doesn’t seem like such a big deal to property built along, say, Highway 1. But cliff properties aren’t immune to the effects of sea level rise, due to the increased erosion inevitable with higher waves.

Waves and changing currents are expected to cause increased coastal erosion across the world, particularly damaging California’s central and northern coast. Water will chip away at cliffs and dunes, carrying away sediment at the base and eventually causing masses of rock and earth to fall into the sea in landslides, suddenly or more gradually over time. Any property perched close enough to the edge will likewise disappear into the waves.

Image credit: U.S. Geological Survey

The images above are two photographs of the same seaside community near Pacifica, taken one month apart in 1998. Severe storms from El Niño hammered the coastline, resulting in rapid erosion alarmingly close to private residences. Seven homes fell into the sea, and 12 more were condemned in Pacifica as a result of that storm season. This type of erosion will occur with increased frequency when higher sea levels worsen the effects of storms.

A study by Environmental Science Associates (ESA) covering 900 miles of Central and Northern California’s coastline found coastal dunes will erode inland an average of 510 feet by the year 2100. Coastal cliffs (which make up over 70% of California’s coastline) will erode an average of 200 feet by 2100. This translates to a loss of 20,000-25,000 acres.

In the next ten years alone, cliff and dune erosion will result in about 6,700 acres lost. However, if California’s government acts quickly, they may forestall or lessen the long-term impacts of erosion on the coastal landscape.

What is California doing to combat sea level rise?

Sea walls are built to absorb ocean waves before they reach the actual shoreline. These vertical walls reduce erosion and protect the homes on the cliffs and bluffs beyond the walls. However, sea walls are a big problem for beach lovers.

The state-run protector of California’s coastline, the Coastal Commission, is against the use of sea walls to protect private residences. They cite issues of:

• geological stability;
• altering of natural processes; and
• preventing the renewal of public beach as sea level rise overtakes parts of the beach.

Revetments are sloped structures, often made of large rocks piled between a beach and its boardwalk or roadways. These are cheaper than seawalls for cities and private citizens to construct, but also receive similar criticisms.

The Coastal Commission has actually limited the private use of sea walls by capping the time a permit allows sea walls to exist. The most common length of time allowed is twenty years (an arbitrary length of time, which was actually why a court overruled the permit cap in one case). After the twenty-year limit is up, the Coastal Commission has the authority to deny a new permit if it determines the beach in the affected area is rapidly disappearing or if the stability of the affected cliff or bluff is threatened.

Areas of California to watch

Erosion occurs at an historical rate of about 1.5 feet per year along the north side of the San Francisco Bay, and around seven inches per year along the south side of the Bay, according to the U.S. Geological Survey. The threat may seem small on a short-term scale, but a big storm can make erosion occur faster, as experienced in Pacifica. Further, the rate of erosion will increase dramatically in the coming decades.

In fact, by 2100, San Francisco’s sea level is estimated to be five feet higher than its current level, on a still day. During big storms, this could rise to 32 feet above today’s sea level, according to ESA.

The coast of Monterey Bay is a mix of cliffs, dunes and beaches. Here, cliffs erode at an historical average rate of 1.5 feet per year, and bluffs erode at 5.5 feet per year. Like elsewhere in the state, this pace of erosion will undoubtedly increase with sea level rise.

Southern California is less susceptible to erosion, since flat beaches are more the norm than towering cliffs. Interestingly, beaches are also the result of erosion, but show the positive effects. All that lost sediment has to go somewhere, and sediment lost to erosion elsewhere often ends up on sandy beaches.

Erosion occurring around Santa Barbara is quite low for the state. That’s because, as it’s both highly and wealthily populated, seawalls have been constructed to protect much of the coastline. The average erosion for this northern area of Santa Barbara is just two inches per year.

Southern California’s highest average rate of erosion is currently around Santa Monica, where they lose about four inches per year. However, parts of the Santa Monica region are under more extreme threat, like the area around the Big Rock Mesa landslide, which devastated 250 homes in 1983.

The coastlines of Oceanside and San Diego average two inches of erosion per year. Slightly higher rates of erosion occur in these regions near Poche Beach, Point Loma Nazarene College and Torrey Pines State Beach, where a sinking bluff caused the death of a tourist in 2008.

What can homeowners and their agents do?

Concerned homeowners can view a map of anticipated sea level rise expected to affect their specific stretch of shoreline. Agents and their clients can check out the U.S. Geological Survey’s Shoreline Change Project map to see if their property is at risk of being swallowed by the ocean in the coming years. (Tip: From the map’s menu bar, click on Base Maps and choose the street view to make the most of the map).

If a homeowner lives near the edge of a cliff, one practice to avoid is over-irrigation. On one hand, some deep-rooted plants are helpful in preventing landslides. On the other, too much watering of plants or crops near a cliff’s edge causes the rock to weaken, as often occurs in California’s dry months, according to the U.S. Geological Survey. Runoff also needs to be correctly channeled; otherwise this too can weaken the cliff’s features. A geological engineer may be consulted to ensure proper water usage for cliff-side homes.

Is there insurance against sea level rise?

Not really. Typical home insurance policies won’t cover any type of land erosion. The reasoning is that erosion occurs over a length of time, and insurance is meant to cover sudden losses.

However, erosion due to flooding is covered under most forms of flood insurance (excluding FEMA’s low-cost flood insurance program). Flood insurance may also cover water damage due to storms worsened by sea level rise. But the gradual wearing away of California’s coast is not covered by flood insurance.

It’s important for homebuyers to do the research before buying a home on the coast, because there is rarely recourse against erosion. In fact, the Coastal Commission warns that homeowners ought to be fully aware and responsible for building in these “hazardous” areas.

Further, a real estate agent representing a seller aware of erosion on the property has a duty to disclose this knowledge to buyer. If the seller is unaware of erosion and if it is not discovered by a home inspection, the agent is not liable for erosion later occurring on the property. However, if the erosion is known to cause changes to features which may not be part of the property under consideration, but influence the home’s value (i.e. sidewalks, landscape features), then it is a material fact and needs to be disclosed.

If the buyer or buyer’s agent notices a neighbor’s property affected by erosion, they need to examine whether the property under consideration may also be affected.

However, just because the neighboring property is suffering erosion doesn’t necessarily mean all nearby properties will experience the same fate. That particular property may have been constructed with no retaining wall or with a poor foundation. It’s always a case by case basis and the buyer needs to consult with an experienced home inspector or call in a soil expert to analyze the potential for erosion.

Will sea level rise influence home sales?

Only in rare cases will the effects of sea level rise cause a difference in home sales. Local housing markets along the coast may see a momentary decline in home values when stories of erosion make the news. But affected homes will be located right along the coast, meaning a very limited number of homes will experience any noticeable difference.

However, urban centers prone to sea level rise — San Francisco — need to continue measures to abate flooding and erosion. The Bay Area can look to Hurricane Katrina’s incredible impact on New Orleans or the destruction wrought in New York City by Hurricane Sandy for examples of what will happen if no action is taken. New Orleans has since implemented new defenses against the destructive forces of water, which coastal cities everywhere can learn from. Without preventive measures, scores of homes will be vulnerable in the low-lying Bay Area.

All the same, this is unlikely to deter homebuyers determined to buy along the coast. These homebuyers are very wealthy (by necessity) and in most cases can afford to sell and move if sea level rise and erosion show signs of overtaking their properties. The stunning views and peaceful weather along the coast come at a price, and many are willing to pay for it.

Look for the next article in this series, which will explain how earthquakes may influence California’s housing market. To read Part I of the series, see: Drought.

Related topics:
california real estate, homeowners insurance, sea level rise

Posted by Amy Thomas | Nov 9, 2015 | Laws and Regulations, New Laws, Real Estate | 4

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

Calif. Family Code §§2337 and 2040; Calif. Probate Code §§69, 250, 267, 279, 2580, 5000, 5302, 13111, 13206, 13562, 5600, 5601, 5602, 5603, 5604, 5040 and 5600
Amended and added by A. B. 139
Effective date: January 1, 2016

A revocable transfer on death deed (RTDD) may be recorded to transfer real estate upon the death of the owner without probate proceedings. The RTDD may be used to transfer:

• real estate improved by a one-to-four unit residence;
• individual condominium units, including the right to use common areas; and
• agricultural land of no more than 40 acres which includes a single-family residence (SFR).

An RTDD is defined as any document created to transfer real estate without covenant or warranty of title to a beneficiary upon the owner’s death. The RTDD is revocable until the owner dies. The document needs to include specific language required by the state.

Editor’s note – RPI will provide standard RTDD forms which include the language mandated by the state. These forms will be available on our Forms Download page when they are finalized.

To create an RTDD, the owner needs to:

• have the capacity to contract;
• name the beneficiary;
• sign and date the RTDD in the presence of a notary; and
• record the RTDD within 60 days of its signing before a notary.

If more than one deed creating a revocable transfer is recorded for the same real estate, only the most recent deed is effective. If another type of deed recorded before the owner’s death creates an irrevocable transfer of real estate, the RTDD is ineffective.

Owner’s rights with an RTDD

An owner’s rights are not affected by an RTDD prior to the transfer. The RTDD does not convey real estate, create property rights for the beneficiary or prohibit action by the transferor’s creditors to collect on any encumbrances on the real estate until after the owner dies and the real estate is transferred.

Upon the owner’s death

Upon the owner’s death, the RTDD transfers real estate to the beneficiary under the terms established in the deed.

Multiple beneficiaries receive real estate transferred by an RTDD as tenants in common. If any one of the multiple beneficiaries cannot receive their share of the property, their share is transferred to the other beneficiaries in equal shares.

An RTDD is ineffective or void if:

• the beneficiary does not outlive the transferor;
• the real estate is held in joint tenancy or as community property with a right to survivorship.

Beneficiary liability

Liens against the real estate existing prior to the transfer have priority over any debts or obligations accumulated by the beneficiary. The transferred real estate is subject to any encumbrances existing at the time of the owner’s death.

Revocation of an RTDD

An RTDD may be revoked any time up to the owner’s death without the consent or notice of the beneficiary. The revocation document needs to be created in the same manner as the RTDD: signed by a notary and recorded within 60 days of the signing.

Revocation of an RTDD does not reinstate any prior deed rendered inactive by the RTDD.

RTDDs are only effective if recorded before January 1, 2021.

Editor’s note – These requirements become effective on January 1, 2016. However, an owner of real estate may create an RTDD. In this case, the effective date refers to the date of the owner’s death – meaning, as long as an owner dies on or after January 1, 2016, an RTDD may be enacted. If an owner’s death occurs prior to the effective date, an RTDD may not be enacted.

Read the bill text.

Related topics:
beneficiary

Posted by Sarah Kolvas | Oct 1, 2015 | Laws and Regulations, New Laws, Real Estate, Your Practice | 0

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

Calif. Labor Code §§245.5, 246 and 247.5
Amended by A.B. 304
Effective date: July 13, 2015

New regulations clarify an employee accrues one hour of paid sick leave per 30 hours worked for an employer only if they have worked for the same employer for at least 30 days in a year.

An employer may use alternative calculations for sick leave accrual, as in the case of employers who do not track employees on an hourly basis, as long as employees accrue and are able to use at least 24 hours of paid sick leave either by the 120^th calendar day of employment or for each calendar year or 12-month period.

An employer is exempt from adopting the one hour per 30 hours worked accrual method if, prior to January 1, 2015, their sick leave or paid time off policy provided employees:

• at least eight hours of paid sick leave within three months of employment of each calendar year or 12-month period; and
• at least 24 hours of sick leave or paid time off accrued within nine months of employment.

If an employer alters the sick leave policy after January 1, 2015, they are required to meet current sick leave requirements by providing:

• one hour of paid sick leave for every 30 hours worked; or
• an alternative accrual method which results in at least 24 hours of paid sick leave accrued and available for use by the 120^th calendar day of employment.

An employer is not required to reinstate accrued paid time off for an employee that was paid out upon termination or resignation.

An employer may satisfy sick leave accrual and disclosure requirements by providing unlimited paid sick leave and indicating so on the employee’s wage statement.

Paid sick leave needs to be calculated either based on the regular rate of pay for the work week or by dividing the employee’s total wages by the total hours worked in the pay periods for the prior 90 days. For exempt employees not subject to minimum wage requirements, any paid sick time provided is to be calculated in the same way as wages provided for other forms of paid leave time.

An employer is not required to inquire about or record the reason for the employee’s use of paid leave.

Government employees who receive one day of paid sick leave per month or who participate in an annual leave program in lieu of paid sick time are compliant with these accrual requirements.

Editor’s note — Most employing brokers hire licensees under independent contractor agreements. Paid sick leave laws do not apply to independent contractors.

However, brokers and agents may opt to enter into an employer/employee relationship. In that case, employed licensees are entitled to paid sick days. Additionally, real estate brokers are subject to these new requirements for any non-licensed assistants or administrative staff they employ. No de minimis exemptions exist for small employers.

Read bill text.

Related topics:
california legislation

Posted by Amy Thomas | Oct 9, 2015 | New Laws, Real Estate | 0

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

Calif. Civil Code §5300
Amended and added by A. B. 596
Effective date: July 1, 2016

A common interest development (CID) that is a condominium project needs to include in its annual budget report:

• a statement indicating whether the condominium project is certified by the Federal Housing Administration (FHA); and
• a statement indicating whether the condominium project is certified by the Department of Veterans Affairs (VA).

The FHA statement needs to read in at least 10-point font:

“Certification by the Federal Housing Administration may provide benefits to members of an association, including an improvement in an owner’s ability to refinance a mortgage or obtain secondary financing and an increase in the pool of potential buyers of the separate interest.

This common interest development [is/is not (circle one)] a condominium project. The association of this common interest development [is/is not (circle one)] certified by the Federal Housing Administration.”

The VA statement needs to read in at least 10-point font:

“Certification by the federal Department of Veteran Affairs may provide benefits to members of an association, including an improvement in an owner’s ability to refinance a mortgage or obtain secondary financing and an increase in the pool of potential buyers of the separate interest.

This common interest development [is/is not (circle one)] a condominium project. The association of this common interest development [is/is not (circle one)] certified by the federal Department of Veterans Affairs.”

Each statement needs to be included in the budget report on a separate sheet of paper.

Editor’s note – Condominium projects need to be approved and certified by the FHA or VA for any condominium unit in the project to be eligible for FHA-insured or VA-guaranteed financing. Homebuyers seeking to achieve small or zero down payments with FHA-insured or VA-guaranteed mortgages will not be able to do so if the condominium project in which the condominium is located is uncertified.

Requirements condominium projects need to meet certification standards include:

• sufficient funds to maintain amenities unique to the condominium;
• a minimum 10% of the budget held for funding of replacement reserves; and
• adequate funding for insurance and deductibles. [See HUD Mortgagee Letter 2012-18; see VA Pamphlet 26-7.]

Condominium projects seeking financing by Fannie Mae and Freddie Mac need to meet similar minimum requirements for certification. Some condominium units, like detached units, may be eligible for limited reviews. [See Fannie Mae Condo Project Review and Insurance Requirements; see Freddie Mac Single-family Seller/Servicer Guide, Chapter 42]

Read the bill text.

Related topics:
common interest development (cid), department of veterans affairs (va), federal housing administration (fha)

Posted by Amy Thomas | Oct 16, 2015 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Business and Professions Code §10145
Amended by A. B. 607
Effective date: January 1, 2016

An individual California Bureau of Real Estate (CalBRE) broker or corporate officer who authorizes an unlicensed employee to make with withdrawals from the broker’s trust account is required to obtain surety bond coverage sufficient to cover trust funds accessible by an unlicensed employee. The surety bond may now include a maximum 5% deductible if the broker provides proof of:

• separate surety bond coverage for the deductible amount;
• a cash deposit equal to the deductible amount kept separate from all other funds accessible to the broker or the broker’s employees; or
• other forms of financial responsibility designated by the Real Estate Commissioner. [See RPI Form 507]

Read more:
Read the bill text.
Brokerage reminder: Trust fund(amentals)

Related topics:
broker, trust funds

Posted by Carrie B. Reyes | Jul 30, 2015 | Buyers and Sellers, Real Estate | 1

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

Well-informed homebuyers leave no room for regrets. Housefax — an online real estate reporting service — gets that. It provides detailed property conditions useful to homebuyers who want to know more about a home before committing to a purchase agreement or a full home inspection report.

What is does

Housefax provides a detailed but easy-to-read report on a home’s history, including information such as:

• building permit history;
• the sales history of nearby homes as well as the home under consideration;
• transaction history;
• voluntary liens on the property;
• a natural hazard risk report;
• details of reported incidents occurring on the property, including fires and floods;
• the distance from the home to the nearest fire station, which can affect home insurance premiums;
• the distance from the home to earthquake faults and flood zones;
• a list of past natural disasters which occurred near the property;
• local gas prices;
• the strength of cell phone service for various carriers which cover the property; and
• the cable and utility companies that serve the property.

See for yourself by viewing a sample Housefax report.

All of this information is no substitute for a buyer’s agent fulfilling their due diligence obligations owed to their homebuyer. However, a Housefax report can aid an agent in discussing what actions a homebuyer may take if an adverse fact about the property is identified. The buyer’s agent has a duty to care for and protect their client’s best interests — beyond the standard property disclosures provided by the seller.

Further, the due diligence obligations of a seller’s agent include providing numerous forms and documents to verify the property’s conditions, including a property profile and a condition of property disclosure sheet, called a TDS. Therefore, most of the information provided by a Housefax report will already be included in these documents. It just won’t be as pretty.

The price

While the first report is free, a single, comprehensive report from Housefax costs $39. Or, components of the report can be ordered separately — a property history report for $9 or an insurance claims history for $19.

How it’s useful

For homebuyers: With a Housefax report, the buyer can ask informed questions of the seller to make sure the home isn’t hiding any surprises before going through the trouble of submitting an offer. The same information can then be used to ask the home inspector more detailed, technical questions after the offer has been accepted.

For sellers: Ordering a Housefax report on their own home can be a clever addition to a seller’s marketing package. Or, if the seller knows the property contains potential homebuyer deterrents, it can be helpful to let potential homebuyers know up front, rather than waste time with an uninformed homebuyer who will walk out of the deal once the full story of the home is known.

For real estate brokers and agents: Housefax can be a way to stand out from the competition by marking you as a proactive, forward-thinking agent. Let potential seller clients know you can pull a property history on their home to help them price their home right and market it to sell. Or, inform buyer clients of their option to order a property history for a home they may be on the fence about.

Our review

The best thing about Housefax is how quickly it works, aggregating public records into a friendly format in under a minute.

One caveat: only 70% of California properties are covered (less than is covered in most other states). So it’s not perfect — but if your client orders a report on a property that Housefax isn’t able to report on, they won’t be charged.

All in all, Housefax can be a handy tool for real estate agents looking to give their clients options for marketing to an increasingly information-hungry client base. It’s certainly not necessary for every transaction, but keep it in your back pocket.

Related topics:
due diligence, home inspection, real estate technology

Posted by Amy Thomas | Aug 24, 2015 | New Laws, Real Estate | 0

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

Calif. Civil Code §1946.7
Amended by A. B. 418
Effective: January 1, 2016

A tenant who serves a landlord with a notice to terminate a tenancy due to domestic abuse, sexual assault, stalking, human trafficking or elder abuse is now responsible for a maximum of 14 days of rent after providing the notice, decreased from the previous 30-day maximum. This 14-day period may be reduced by the terms of the lease or rental agreement. If the unit is rented to a new tenant while the prior tenant is obligated to pay rent, the rent owed by the prior tenant is prorated.

Read more:
Read the bill text.

Related topics:

Posted by Carrie B. Reyes | Apr 21, 2015 | Buyers and Sellers, Economics, Feature Articles | 0

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

Global forces make themselves at home

Given California’s enormous size — both geographically and economically — it’s a real player in the global economy. In fact, it has the largest gross domestic product (GDP) of any other state, and the ninth largest GDP in the world.

How does California real estate fit into this global puzzle? Most home sales are actually excluded from GDP measures, as only new home sales are included in GDP. However, a large portion of the state’s wealth is held in the housing market, and it’s not just U.S. citizens who want to get into California real estate.

Migrants pour into California from other countries, far surpassing migrants from other states. We consistently gain over 100,000 international migrants each year, while actually experiencing a net loss of several thousand households to other states yearly.

To that point, 14% of real estate agents surveyed by the California Association of Realtors assisted in a home sale with an international client (including buyers and sellers) in 2014.

The survey also showed:

• 78% of agents who closed with an international client assisted an international buyer (sometimes in addition to an international seller).
• The majority (one in five) of these sales transactions took place in Los Angeles County.
• International buyers primarily came from China, Canada and Mexico.
• Two-thirds of international buyers purchased a single family residence (SFR).
• Half of international buyers purchased homes in the suburbs.
• Two-thirds of international buyers paid in cash (compared with about one-quarter of all homebuyers in the Southern California housing market).

Most interestingly, 43% of international buyers who purchased in California during 2014 planned to use the home as a primary residence. 33% planned to use it as a vacation home.

Why do foreign investors like California real estate?

The biggest reason international buyers purchased a home in California was to be closer to family or friends already in the state, according to the CAR survey.

California is simply a pleasant place to live, with warm weather all year (the only other state international homebuyers frequent more than California is Florida). Since nearly half of all international buyers plan on using their purchase as a primary residence, our friendly climate is especially important.

Another reason why the Golden State is a great place to establish a primary residence are the world-renowned universities here (three of the top ten universities in the world are found in California, according to U.S. News & World Report). More international students study in California than any other state, with 111,400 international students here as of the 2013-2014 academic year, according to the LA Times. International student enrollment continues to rise, with most international students consistently coming from China.

The next biggest reason to buy was for investment purposes and/or for the tax advantages of homeownership found in the U.S. and California.

They follow the money

For those strictly concerned with dollars and cents, the U.S. is a great place to invest. The value of the dollar is relatively strong, especially viewed through the lens of less stable economies like Mexico or the European Union. In fact, it’s only grown stronger in the past year (beginning mid-2014 and continuing today).

On the flip side, a stronger dollar (essentially a more expensive dollar to international clients) reduces the buyer purchasing power of international homebuyers. This means that you may see fewer international buyers in 2015, as buyers wishing to pay with all cash now find their cash unable to purchase as much house.

Editor’s note — A similar loss of buyer purchasing power occurs when mortgage rates rise, reducing mortgage amounts. More on that here.

An example of profit gained

Then again, the fluctuating exchange rate is one of the reasons why U.S. property can be such a good investment. Consider a buyer from China who purchased a home in California in January 2014.

At the time, the Chinese Yuan Renminbi (¥) was trading at approximately 6.1 Yuan per one U.S. dollar. The purchase price was $400,000, equivalent to ¥2,440,000.

Today, in April 2015, the Yuan is trading at ¥6.17 per $1. In other words, the U.S. dollar has become more expensive to purchase using the Chinese Yuan. With this increase, the same investment has grown from ¥2,440,000 to ¥2,468,000. This is an increase of ¥28,000 or $4,538 due to the strengthening dollar alone.

Further, consider the intervening increase in home values witnessed in California. Mid-tier homes have risen in value approximately 6% over the past year. Thus, the full increase would be closer to ¥176,000, or $28,500.

This example covered just one year. However, real estate can be an excellent long-term investment vehicle, as property values tend to rise with or above the rate of consumer inflation. Foreign investors are rarely looking for a short-term flip (unlike U.S. speculators). Rather, they usually hope to park their cash for a long-term investment, helped by the fact that many international buyers plan to reside in their U.S. homes.

Are foreign investors good or bad for today’s real estate market?

The issue is, once again, two-sided.

The good: investors from other countries give home sales volume and pricing extra support.

This is especially helpful in today’s recovering real estate market, when owner-occupant homebuyers are still bouncing back from the lean years of the extended recovery. California just regained all jobs lost to the 2008 recession in mid-2014. With the population increase over the intervening five and-a-half years, we won’t likely reach a full jobs recovery until around 2019. Thus, from a short-term perspective, international investors are a boon to today’s real estate market, thirsty for end user homebuyers.

However, there is a more complicated aspect to international investment in our real estate market.

Foreign instability

The growing presence of foreign real estate investors signifies the instability of other nations’ economies. Thus, there is a small concern that the Federal Reserve (the Fed), which controls U.S. economic policy, will make policy decisions based on our relative success in the global market, perhaps acting too soon for our fragile economy.

Foreign investors turning in larger numbers to the strong dollar pseudo-inflates our economy. In this case, the strong dollar does not indicate an innately strong U.S. economy. Rather, it reflects a relatively strong position, in relation to the economic chaos across most of the rest of the globe.

The Fed has kept the short-term interest rate at essentially zero since 2009 in an effort to stimulate lending, and in turn other things like jobs and wage growth. This has allowed mortgage rates to remain low. However, the Fed intends to raise the short-term rate – likely later in the year and then very slowly by only a couple of percentage points over two years or so. If the Fed increases interest rates before the economy is ready, the results will be further economic stagnation (and an even worse flattening of volume and prices in the real estate market).

Further, when the Fed does increase the short-term rate, economists warn the effect on global markets will be negative — particularly for residents of China, who have borrowed more U.S. dollars than any other country’s residents. When rates rise here in the U.S., the cost of borrowing will go up for international investors. Along the same lines, a stronger dollar also means more foreign dollars are needed to repay previously borrowed debts.

To summarize, international real estate investors do not damage California’s market. But their increasing presence means you need to keep an eye on mortgage rates and prepare for their eventual rise, which is coming closer every day. And remember — it’s not a matter of if, it’s a matter of when rates will rise. As soon as rates do rise, expect home sales volume to fall off, followed within a year by reductions in home prices.

Related topics:
buyer purchasing power, economic indicators, federal reserve (the fed), foreign real estate investor,

Posted by Sarah Kolvas | Oct 19, 2015 | Laws and Regulations, Real Estate, Your Practice | 6

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

When issued a real estate license, brokers and agents are legislated to act with honesty and in good faith. Further, they are to abide by real estate law and California Bureau of Real Estate (CalBRE) regulations. However, some fail to follow the duties imposed on them by their license, disrupting the mechanics of transaction and the oversight structure inherent to the profession.

The CalBRE now reports it has received a multitude of complaints regarding sales agents operating solo, without an employing broker.

For example, a licensee advisory released by CalBRE addresses sales agents who undertake real estate activities unlawfully by acting independent of an employing  broker. The agents’ marketing materials also are deceptive, describing them as “independent sales agents” – conduct which is a clear violation of CalBRE regulations and state law. [CalBRE Licensee Advisory, September 2015]

A positive takeaway from the CalBRE’s advisory? Real estate licensees are willing to file online complaints when other licensees violate real estate law and rules of conduct. This sort of internal policing is an encouraging trend as it creates a level playing field for all and keeps the public perception of real estate licensees positive. The CalBRE has thus far responded diligently by acting on complaints and enforcing disciplinary actions when necessary.

For licensees, take all this as a reminder to comply and demand compliance for the benefit of the real estate profession and clients alike.

As an agent of the agent, always and forever

All real estate sales agents who intend to be compensated for rendering real estate services in California are required to first be employed by a licensed broker. They may not act as independent agents – it is a legal impossibility. [Calif. Business and Professions Code §10132]

Remember: sales agents and brokers have different levels of education, different legal and social status, and different duties owed to the CalBRE. Brokers are authorized to deal directly with members of the public to solicit, agree to and render brokerage services for compensation, services called licensed activities. Conversely, sales agents are not authorized to do any of these things – they are limited to acting solely on behalf of their employing broker. As in a chain of command, agents answer to their broker, brokers answer to the CalBRE, and the CalBRE answers to the public. [Bus & P C §10131]

Licensed activities include negotiating the purchase, sale, exchange, lease/management or hypothecation of real estate. Several other categories of licensed brokerage activities exist, including facilitating trust deed sales, mobile home resales and business opportunities. All of these are activities requiring constant oversight and supervision by a licensed broker. [Bus & P C §10131]

A sales agent, when providing real estate brokerage services for a fee, is limited to the status of an employee acting on behalf of and dependent on their employing broker – an agent of the agent. A sales agent rendering real estate services may not independently contract in their own name or on behalf of anyone other than their employing broker. This is why an agent needs to hang their license under a broker in order to engage in any real estate-related activities in expectation of a fee. Further, an agent performing real estate services cannot be employed by any person who is a member of the public. [Bus & P C §10160]

Additionally, sales agents can only receive compensation – fees – for their real estate-related services from their broker. An agent providing real estate services may not receive compensation directly from anyone else, such as the:

• seller;
• buyer;
• landlord;
• another broker or agent; or
• other provider of services in a transaction, like a:
  • lender;
  • title company; or
  • escrow.

Only the employing broker can receive the earned fee and pay the agreed-to split to their agent. [Bus & P C §10137]

As a duty owed to the CalBRE, brokers are responsible for all activities their agents carry out within the course and scope of their employment. Occasionally, brokers fail to exercise oversight and reasonable supervision of the conduct carried out by their sales agents and associate-brokers. Thus, on a complaint for failed supervision filed with the state, the failure places the employing broker’s license at risk of suspension or revocation by the CalBRE. [Gipson v. Davis Realty Company (1963) 215 CA2d 190; Bus & P C §10177(h)]

Independent contractor status does not an independent agent make

For the less than observant sales agent, confusion or assumptions exist due to terminology and myths when they enter into an independent contractor (IC) agreement with a broker. IC agreements are employment arrangements designed to allow the employing broker to avoid income tax withholding and employer contributions to unemployment insurance, social security and the like.  IC agreements in no way permit a sales agent to practice independently or exercise uncontrolled discretion in their handling of listings or negotiations of sales, leases or mortgages. [See RPI Form 506]

A licensed sales agent is always subject to supervision by their broker, whether employed under an IC agreement or a broker-agent employee employment agreement. Independent they are not. The employing broker is still mandated to actively manage their brokerage business and all employees. This CalBRE mandated supervision cannot be contracted away by use of an IC agreement (or office manager agreement).

Fundamentally, when a CalBRE-licensed agent intends to act and advertise as an “independent” or “freelance” licensee, they need to first obtain a broker license.

Related articles:
Brokerage Reminder: The agent of the agent – reasonable supervision required

Avoiding violations in marketing

To maintain the legal hierarchy structured for the real estate brokerage profession, sales agents and brokers need to ensure all agent activity is continually supervised by their broker. One component of these requirements is the manner in which sales agents brand themselves in their marketing material – their outward facing image to the public.

As of January 1, 2015, sales agents are permitted to use both fictitious business names and team names, subject to the following rules. A fictitious business name is a professional brand name used to conduct real estate activities (e.g. LOL Realty), also known as a D.B.A. (“doing business as…”). A team name is a brand name used by one or more sales agents. It will include the surname of at least one agent in combination with “group,” “team” or “associates” (e.g. Smith Group). [Bus & P C §§10159.5, 10159.7]

Sales agents may use fictitious business names and team names only with the authorization and oversight of their employing broker. [Bus & P C §§10159.5(b), 10159.7]

Use of either a fictitious business name or team name in marketing material requires the employing broker’s name and license number to be included in equal prominence to the name of the team or fictitious business. Further, the agent is also required to clearly display their own name and license number or, in the case of team names, the name and license number of at least one agent using the team name. [Bus & P C §§10159.5(d), 10159.6]

These requirements apply to all advertising and solicitation materials, including printed flyers, emails and “For Sale” signs. Inclusion of the broker’s identification ensures a sales agent’s marketing material does not improperly suggest the agent is practicing real estate independently and without the required supervision of their employing broker who has a duty to protect members of the public.

As a sales agent, you may make it easier by preparing marketing material from the perspective that it is presenting you and your broker – while the broker may function without an agent, the agent cannot function without their employing broker.

As a broker, you have a duty to the CalBRE to ensure your sales agents are complying with marketing guidelines. So, to avoid disciplinary action by the CalBRE, confirm the required identifying information is included in all agent advertisements and points of contact with the public.

Related articles:
Rules for fictitious business names and team names
Regulations for fictitious business names and team names under a responsible broker

Are you a sales agent who wants to improve your legal standing with your broker or truly work independently by upgrading to a broker license? first tuesday offers all the broker licensing courses you need to qualify for and pass the California state exam. Sign up for the courses here or call 951.781.7300.

Related topics:
broker, department of real estate (dre), fictitious business name, marketing, sales agent, team names

Posted by Amy Thomas | Nov 2, 2015 | Buyers and Sellers, Real Estate, Your Practice | 0

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

Showing properties to buyers is the make-or-break moment in many potential transactions. Keep these tips in mind before you unlock the door.

Step 1: Do your research

Knowing the breadth of the local inventory will help you to keep up with current market activity in your area. Buyer’s agents and seller’s agents both benefit from thorough knowledge not only of the property marketed and being considered by a buyer, but of other properties like it.

Previewing properties is the best way for a buyer’s agent and a seller’s agent to get to know the value of a home. When buyers visit a house, they often ask questions like:

• Why is this home more expensive – priced higher – than the home down the street?
• My friend’s house two blocks down just sold for $XX. Why is this home not the same price?
• I see problems with this property. Why is the price so high?

If you know what similar properties in the area are really like, you’ll be able to answer these questions with ease. The home down the street may be less expensive because it has fewer square feet or amenities, like fireplaces or an extra bath. Not only will a seller appreciate their agent’s ability to effectively defend the value of their home, but buyer’s agents impress potential buyers with their deep familiarity of the area.

Another reason buyer’s agents need to preview properties is to map a route to the showing. If you are bringing potential buyers to a home, you’ll need to know which parts of the neighborhood are the best selling points. Drive and observe the streets around the property to determine the conditions buyers will want to notice, like the local school, playgrounds and shopping centers, and which areas negatively affect a buyers’ initial opinion, like an abandoned strip mall.

Step 2: Prepare the property

For seller’s agents, it’s part of the job to help your seller present the property well. Coach the seller through staging their home, and tell them to try and keep it as pristine as possible until you’re done showing it.

Instruct the seller to clean the property thoroughly, including areas not seen on a daily basis, like garbage bins kept under a sink. Sellers will also need to get rid of clutter in both visible and hidden areas. For example, buyers will look into closets for storage space, and clutter makes closets appear smaller than they are.

Sellers also need to be aware that furniture arrangements make a difference in a buyer’s perspective of the home. Tell your seller to arrange furniture so that:

• every room is properly furnished;
• each room contains no more furniture than absolutely necessary; and
• all furniture looks new and complements the house.

Tell the seller to remove any furniture that looks shabby or is in disrepair.

Suggest minor repairs the seller may be able to perform without major cost. Cleaning the gutters or replacing a stubborn doorknob makes a huge difference to buyers looking for a perfect home. These minor items are distractions misdirecting a potential buyer’s attention from the major high points.

Pets need to be relocated during showings, too. Have your seller make a plan for their pets by keeping them at a friend’s house when prospective buyers inspect the property. Remove any hair, food dishes or other signs of pets before a showing. Be aware of any lingering smells – pet odors cling to furniture, curtains and carpet, as does tobacco smoke – and occupants typically become indifferent to persistent odors.

Instruct your seller not to neglect landscaping. Remove old, dilapidated patio furniture. Mow and trim the lawn, and plant flowers or shrubs. A clean and pleasing yard will instantly enhance curb appeal.

Step 3: Market properly

When the home is ready to show, it’s time to begin marketing the property. Seller’s agents need to make sure the property is listed with many quality photos on all available multiple listing service (MLS) sites, as well as your agent website.

An open house is a great way for seller’s agents to stir interest in the property and show off its amenities to a variety of people. Tell other homeowners in the neighborhood about the open house as well – they will likely visit themselves, and they do make recommendations to friends and relatives.

Don’t forget to be smart with your advertising. Seller’s agents need to know the proper requirements for sign placement before you paper the town. Be sure to have plenty of property flyers and business cards at the open house with your contact information — some buyers will want to get in touch with you.

Have a marketing package fully disclosing the property’s attributes (Transfer Disclosure Statement (TDS), natural hazard disclosure (NHD), home inspection report (HIR), expenses, title profile, termite clearance) immediately available to give open house visitors who ask questions beyond the information in your marketing flyers. These expanded inquiries are the signal that negotiations have just begun. They are seeking more facts, an indication you are dealing with a person seriously interested in the property.

Step 4: Schedule your showings

For different types of buyers, seller’s agents will need to put on different showings. If you’re just starting to market the property and drum up interest, an open house is a good idea. Open houses do, however, invite literally anyone to the home, so you may get a lot of opportunistic visitors just enjoying the hors d’oeuvres — or unsupervised valuables.

For serious potential buyers, private showings are a better way to increase their familiarity with the property. A seriously interested buyer wants to see into all the nooks and crannies of the home and ask questions more particular to their personal situation.

Seller’s agents need to discuss with the seller ideal times for showings. Buyers tend to prefer viewing homes when the seller isn’t around, so determine a schedule of times the seller is usually absent. However, be sure the seller knows some buyers have strict time constraints and may need to see the home at the last minute.

As a buyer’s agent, you need to negotiate times with the seller that work best for your buyers. Try to encourage a seller and their agent to schedule a private showing at a convenient time for your buyers to permit the buyer to do so at their own pace. Of course, vacant properties being shown with a lock box may be ideal – you and your buyers may go to see them at any time and stay as long as needed.

Step 5: Interact with buyers

Buyer’s agents and seller’s agents need to maintain a balance of privacy and helpfulness while the buyers are viewing the home. Be sure to give them enough space to make private opinions while maintaining availability to answer questions. Don’t just point at things or state the obvious – “here’s the kitchen,” “here’s the bathroom” – let the buyers take in the home, and wait until you reach a significant feature before stepping in.

Keep an eye on buyers, though; theft occurs during open houses and viewings, so a seller’s agent needs to be sure they’ve advised the seller to lock up any easily stolen valuables and sensitive paperwork. Buyer’s agents also need to follow buyers at a discreet distance to keep a watchful eye while giving clients freedom to observe.

Showing a home is much more than simply walking buyers through all the rooms. Whether you’re working as a buyer’s agent or a seller’s agent, proper planning, preparation of the property and marketing materials increases the chances of negotiating a successful transaction.

Related topics:
buyers agent, curb appeal, marketing, open house, sellers agent, staging property

Posted by ft Editorial Staff | Jan 27, 2015 | Buyers and Sellers, Commercial, Feature Articles, Forms, Investment, Laws and Regulations, Property Management, Real Estate, Your Practice | 0

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

Commercial brokers: This article takes a closer look at compiling energy use data and using the ENERGY STAR® Portfolio Manager to create disclosures for the Nonresidential Building Energy Use Disclosure Program. This is part two of a series on the energy benchmarking disclosure requirements under Assembly Bill 1103. Read the first installment here.

Electricity, gas and other utility bills represent a meaningful portion of a property’s operating cost—up to 20% of the rent amount. To get this critical property information to buyers, tenants and mortgage lenders, commercial property owners and their agents are now required to disclose energy costs up-front, before the owner enters into a binding agreement.

The commercial energy use disclosure program

To recap from the prior article, energy use disclosures are currently required on commercial buildings with gross floor areas (GFAs) — all interior space contained within the building envelope — greater than 10,000 square feet. Disclosures also become mandatory for commercial buildings between 5,000 and 10,000 square feet GFA on July 1, 2016.

Commercial property owners are required, and their agents duty-bound, to disclose their property’s energy usage to:

• prospective buyers, at least 24 hours before accepting or countering a written proposal to enter into a purchase agreement [20 Calif. Code of Regulations §1681(k)];
• prospective and existing tenants negotiating to enter into or renew a lease for an entire building (single tenant property), at least 24 hours before accepting or countering a written proposal to enter into a lease agreement [20 CCR §1681(l)]; and
• mortgage lenders  at the time a loan application is submitted for financing to encumber the entire parcel. [20 CCR §1681(m); 20 CCR §1683(a)]

Portfolio Manager

For owners and their agents, measuring and disclosing a commercial property’s energy use to prospective buyers, tenants and lenders is completed through an online service called the ENERGY STAR® Portfolio Manager. The service produces the required disclosure, called the Data Verification Checklist (DVC).

Neither the commercial property owner nor the broker fills out the DVC. Instead, utilities and other energy services (e.g., solar energy providers) compile the energy use data and generate the DVC on the owner’s request. The owner and/or agent simply download the DVC to provide as required.

Editor’s note — For a detailed look at the commercial building energy use disclosure timeline, see Part I of this series, “Energy benchmarking: disclosing commercial property energy use.”

Measuring energy use

The DVC supplies information about a building’s energy performance and, if available, the building’s ENERGY STAR® Energy Performance Score.

Portfolio Manager is equipped with energy use data gathered from nationwide surveys of commercial buildings. The data is used to illustrate a particular building’s efficiency relative to commercial properties of similar same size, use and age.

Portfolio Manager generates a numerical figure indicating a commercial building’s energy use intensity (EUI). Put simply, EUI is the amount of energy a building uses over a 12-month period per square foot of GFA, expressed in kilowatt-hours (kWh) for electricity or therms for natural gas.

Portfolio Manager’s benchmarking function compares a particular building’s EUI with the average for similar buildings. What it does not communicate, however, is the relative efficiency of a building, as typical usage intensities vary widely between types of buildings and their uses.

To address this comparison failure, Portfolio Manager also assigns an ENERGY STAR® Energy Performance Score to some buildings. The Energy Performance Score is an efficiency measurement represented on a scale of 1 to 100, normalized for a building’s characteristics, operations and regional weather.

Scores above 75 are considered exemplars of efficient energy use. When marketing a property, agents pull the score and use it to emphasize potential savings on operating costs in one property over another. Think of it as a measure of miles per gallon for commercial real estate.

Building types eligible for an Energy Performance Score include:

• banks;
• schools;
• hospitals and medical offices;
• supermarkets and big-box retail;
• hotels;
• office buildings;
• warehouses and distribution centers;
• retail stores;
• churches, and more.

Editor’s note — For specific Energy Performance Score eligibility criteria for each property type please visit http://www.energystar.gov/buildings/facility-owners-and-managers/existing-buildings/use-portfolio-manager/understand-metrics/eligibility.

The building’s eligibility for an ENERGY STAR® Energy Performance Score and its disclosure do not affect the owner’s responsibility to disclose the DVC. The score serves as a benchmarking tool to assist the owner, buyers and tenants in understanding a building’s energy performance. In contrast, the DVC serves as a measure of potential property operating costs for buyers, tenants and lenders.

Using Portfolio Manager

Before marketing a listing for sale or lease or seeking financing, a property owner or manager creates the DVC by using Portfolio Manager to:

• establish an account to benchmark all of the owner’s properties;
• maintain a unique profile for each commercial property describing its size, use type, year of construction, occupancy characteristics and energy types;
• define occupancy and energy consumption characteristics for each use of the building, including square footage, operating hours, total workforce and major equipment (computers, refrigerators etc.); and
• authorize energy providers to release the past 12 months’ energy use data for the property; or
• manually input energy usage data based on billings and metering for the prior 12 months’ energy use. [20 CCR §1684(a)]

Editor’s note — If 12 full months of energy use data is not available, Portfolio Manager will estimate the energy use for missing months based on available usage data and other information in the building profile.

The broker representing the owner has a duty to advise the owner to:

• create their property’s Portfolio Manager profile promptly on listing the property; and
• update it every 30 days.

Then, the owner’s broker can benchmark and report energy use up front with the click of a button for a prospective buyer, tenant or lender, at the outset of negotiations. Without attaching the DVC to the owner’s counter proposal, the prospective user’s broker may well believe the owner is not serious about entering into a deal.

ENERGY STAR® has published guidance on using Portfolio Manager to benchmark properties and generate the DVC. Click here to visit the ENERGY STAR® Portfolio Manager Quick Start Guide.

Buildings with multiple uses

The DVC details energy consumption characteristics for each unique use within a building. To do this, the building owner uses Portfolio Manager to profile multiple uses according to the portion of GFA each use occupies.

Consider, for example, a 500,000 square foot office tower containing:

• a 100,000 square foot office tenant;
• two 75,000 square foot office tenants;
• a 50,000 square foot office tenant;
• a 100,000 square foot office tenant with extended operating hours;
• 50,000 square feet of restaurant space;
• 50,000 square feet (10%) vacant space; and
• a 6-level parking garage with one subterranean, four semi-open and one open-air parking levels, each 10,000 square feet, the energy use for which is captured on the building’s main meters.

The building’s standard occupancy hours are 7am-7pm Monday to Friday.

Portfolio Manager will prompt the building owner or manager to combine all similar uses. For this example, Energy Star’s analysis has determined that office and restaurant tenants keeping similar hours use similar amounts of energy. Thus, the Portfolio Manager system will prompt the user to combine these uses as well.

Thus, the owner combines the four office tenants keeping regular hours with the restaurant tenants, including information (or estimates) on their total number of employees, computers and other major equipment as prompted: 350,000 square feet.

Since one office tenant keeps extended hours, Portfolio Manager will prompt the user to create a separate category for that use: 100,000 square feet.

Finally, vacant office space keeps no hours. However, since the space consumes a minimal amount of energy, the owner needs to account for its energy use. Thus, the vacant space will receive its own use category: 50,000 square feet.

Parking areas also consume energy, which Portfolio Manager estimates by size and degree of enclosure. With Portfolio Manager, the owner creates a separate sub-profile for the parking facility. Delivery of the sub-profile is part of the full energy usage disclosure presented on the DVC.

Automated energy data uploads

One year’s worth of energy use information for each major type of use within a building is a daunting amount of data to manage even for smaller buildings. A major roadblock to wider compliance with the energy disclosure mandate is amount of time and effort required to track down, organize and enter all the usage data Portfolio Manager requires.

Fortunately, this is not the case for owners of properties in many major energy provider service areas. A growing number of energy providers cooperate with Energy Star to upload information to Portfolio Manager about a commercial property’s energy use on the request of a property owner, using just a meter number. Portfolio Manager provides owners with an automated request for data from the utility.

Editor’s note —For detailed tutorials on how to input energy use data into Portfolio Manager manually, using a spreadsheet or by requesting an automated upload from participating energy providers, visit the ENERGY STAR® website.

The following major California energy providers currently provide automated energy data uploads when requested by a building owner or broker:

• Pacific Gas and Electric Company (PG&E);
• Southern California Edison (SCE);
• San Diego Gas & Electric (SDG&E); and
• Sacramento Municipal Utility District (SMUD).

On a building owner’s request, utilities and energy providers have 30 days to supply energy use data for the most recent 12 months in the appropriate Portfolio Manager categories. Most providers offering automated data uploads respond to requests in minutes, provided the building owner or broker has obtained prior authorization from each energy user in the building. [20 CCR §1684(b)]

When energy providers have complied with the request for data (or manual data entry is complete) a DVC is ready to be created. Then, if the Portfolio Manager account has been active for more than 30 days, the commercial property owner logs into their account and downloads the DVC disclosure form to hand to the prospective buyer, tenant or lender.

Privacy concerns for utilities and tenants

Utilities, in addition to building owners and tenants, have expressed concerns over the release of privileged energy use.

To address this concern, utilities require a building owner to obtain an authorization from each individual tenant in a commercial building to release energy usage data from the utility to Portfolio Manager.

Not all tenants are ready — or willing — to hand over their utility metering information. This can cause headaches for brokers tasked with helping their clients make the necessary energy use disclosures associated with the sale, lease or application for financing involving the entire building.

To require a tenant to authorize the release of energy consumption data on a landlord’s request, commercial property lease agreement forms need a provision calling for the tenant’s cooperation in the Nonresidential Building Energy Use Disclosure program:

5.3  Tenant will, on request of Landlord, authorize their utility companies to release energy consumption data directly to Landlord for Landlord’s Data Verification Checklist used for energy benchmarking purposes and, upon further request, provide energy consumption data on the Premises. [first tuesday Form 552 §5.3]

Editor’s note — As a supplement to this provision, first tuesday will release Form 552-9 with which the tenant authorizes their energy provider to release data to the landlord.

When a tenant refuses to authorize the data release, Portfolio Manager does allow the building owner to substitute a generic energy consumption profile for the usage type. Portfolio Manager has enough survey data to produce a rough estimate of the monthly energy consumption of, say, a 4,000 square foot hair salon or 15,000 square feet of office space. Substituted data, called a Missing Data Protocol, is marked on the DVC. [20 CCR §1684(e)]

Some utilities have taken the further step of offering aggregate energy usage data for multi-tenant buildings when some tenants refuse to release actual data. Southern California Edison, for instance, will aggregate data based on a “15/15 rule”—that is, when a building has:

• more than 15 tenants; and
• no one tenant uses more than 15% of the building’s total energy consumption.

While creating the disclosure documents, the building owner has access to privileged data on a tenant’s energy use. The regulations prohibit the owner from using the data for anything other than compliance with the Nonresidential Building Energy Use Disclosure Program. [20 CCR §1683(b)]

Questions of accuracy

A complete picture of a commercial property’s energy use is difficult to obtain under the current reporting and disclosure scheme. Portfolio Manager is a powerful program, but it depends heavily on the total cooperation of owners, brokers, tenants and utility providers to create an accurate portrait of energy efficiency. With limited experience to date, that has proven to be a very high bar.

A tenant’s refusal to authorize data release or a utility’s refusal to aggregate energy use forces the commercial property owner and broker to rely on estimates and Missing Data Protocols to rough out an idea of the property’s energy consumption. Reliance on such estimates is an obviously inferior way to disclose energy use and market a property’s efficiency. Even the most advanced algorithm can’t account for the vagaries and fluctuations in energy use like a bona fide meter readout does.

Concerns about inaccurate disclosures will persist until:

• standard commercial property leasing forms contain provisions requiring all tenants to make their energy consumption data available; and
• new legislation emerges requiring utilities to provide aggregate energy consumption data for commercial properties at the owner’s request.

Otherwise, any energy disclosure implicitly contains the caveat that the data is disclosed to the extent of the owner’s knowledge. At the current stage, commercial energy use disclosures are often no more than a rough sketch of the amount of consumption a buyer, tenant or lender may expect. It will take strengthening and streamlining the disclosure mandate to elevate energy efficiency to the core property value consideration it deserves to be.

Related topics:
commercial property, energy star®, landlords, nonresidential building energy use disclosure program

Posted by ft Editorial Staff | Dec 7, 2015 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Labor Code §§230.8 and 233
Amended by S.B. 579
Effective date: January 1, 2016

An employer is prohibited from discharging or discriminating against an employee for taking take time off to enroll their child in school or with a licensed child care provider, or to address a child care provider or school emergency, as long as:

• the time taken off does not exceed 8 hours per month and 40 hours per year; and
• reasonable notice is given to the employer.

Employees protected by this law now include a grandparent or any other person who stands in loco parentis to a child (i.e. someone who is not a biological or legal parent of the child but assumes the role of the child’s parent).

Additionally, an employer may not deny an employee use of sick leave to attend to the preventive care of a family member, or to obtain relief as a victim of domestic violence, stalking or sexual assault.

Read bill text

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Posted by Carrie B. Reyes | Aug 13, 2015 | Finance, New Laws | 0

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

The Consumer Financial Protection Bureau’s (CFPB’s) “Know before you owe” integrated financial disclosure is a large improvement over the old, confusing mortgage disclosure forms. Effective October 2015, homebuyers and sellers will each sign a single, streamlined form at closing: the unified Closing Disclosure. This is to be delivered to the homebuyer and seller three business days before closing.

However, there’s a further change under the “Know before you owe” rules that is drawing heavy fire from critics. When a substantial change is made to the disclosure, the transaction is placed on hold for an additional three days. During this time, the buyer or seller reviews the changes and the deal is suspended in stasis.

A recent piece in Forbes loudly disapproves of the three-day required wait period when changes are made to the Closing Disclosure. The author suggests the CFPB’s new rule has the potential to delay closings for everyone directly and indirectly involved in the transaction:

“The mortgage world is virtual and speedy and the hiccup will in all likelihood be quickly and satisfactorily remedied. But if the numbers change, the CFPB says everybody has to stand down for 3 days because, well because the CFPB says so.  So now what?  Families stay with family, motel rooms are secured, storage fees are paid, unhappiness abounds.

And then there is the domino effect.  A buyer delayed closing may delay the closing for the house the seller is buying.  That could mean the closing could be delayed for the house the seller of the house the first seller is buying which could mean the closing may be delayed for all of the rest of the closings down the falling dominos line.  Anarchy.”

Well, when you put it that way, it does sound inefficient and useless, doesn’t it? But let’s take a moment to dig a little deeper to see whether there is any merit to the criticism.

The truth is, the new disclosure rules will not delay closings for the vast majority of transactions.

The initial three-day waiting period is standard for all consumer mortgages and thus can be planned for. Further, an additional three days are not required for each and every change made to the mortgage, as is glossed over in the Forbes piece. Rather, the three-day clock only starts over if:

• 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.

These three (fairly rare) instances are the only things which cause a three-day closing delay.

More common adjustments to the mortgage which will not require an additional three-day review include changes to:

• the real estate fee earned;
• required escrow amounts;
• typos in the closing table; and
• unexpected discoveries, even if they require seller credits.

In all of these common changes, buyers won’t need an additional three days to think over their purchase decision or review closing documents. However, when substantial changes are made — such as the inclusion of a prepayment penalty — buyers need the extra time to think over the significant financial implications.

The CFPB’s responsibility is in its name: to protect consumers. Therefore, when a mortgage is altered substantially, it’s in the consumer’s best interest to have extra time to review the changes with their agent, crunch the numbers and figure out how these changes will affect their future finances. Without the requirement, homebuyers and sellers may be inclined to agree with the lender’s last-minute change just to ensure a timely closing, without fully realizing what they’re agreeing to. Worse, they may feel like they have no choice and are beholden only to the calendar.

Therefore: bring on the additional three-day wait period. In most cases, it won’t negatively push back your closing dates. But when it does delay closing, you can be sure it will be due to a significant change in terms and in your client’s best interests to give it careful, deliberate thought.

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

Posted by Carrie B. Reyes | Mar 3, 2015 | Buyers and Sellers, Real Estate, Your Practice | 2

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

Sometimes, it takes more than a down payment and mortgage financing to secure a home purchase. In fact, in some cases, buyers and sellers come up with some pretty strange incentives to nudge the other party in the right direction to close the deal.

For example, here is a condo for sale in San Francisco. It’s biggest downside is that it lacks a parking space. The seller’s creative solution? Include a year of unlimited rides from the ride sharing service, Uber. Sure, it’s a catchy idea… however, the condo hasn’t been snatched up, so this unconventional thinking clearly hasn’t worked yet.

Then there was that home that garnered plenty of media attention for offering Super Bowl tickets to the right buyer. However, this also didn’t work for the sellers as the home is collecting dust and still awaiting a sale.

On a personal note, I recently experienced an offer from a buyer that was well below asking, but they attempted to sweeten the deal by including a brand new car. This was also unsuccessful.

Are we seeing a trend taking root here? Maybe some bonus closing incentives are just too off the wall for serious buyers and sellers to consider, and merely serve as a distraction from the end goal: buying and selling real estate.

What are your experiences with strange closing incentives? Which ones worked and which ones were too unorthodox to succeed? Share your experiences in the comments below.

Related topics:
closing