Posted by ft Editorial Staff | Sep 17, 2014 | Commercial, Fundamentals, Investment, Laws and Regulations, New Laws, Real Estate, Your Practice | 0

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

Calif. Civil Code §2079.13
Amended by S.B. 1171
Effective date: January 1, 2015

The agency law disclosure and agency confirmation provision are to be provided by real estate brokers to principals on all nonresidential real estate purchases, and nonresidential lease transactions with lease terms longer than one year. [See updated RPI Form 305: Agency Law Disclosure]

Editor’s note — The California Association of Realtors (CAR) opposed this law, stating that most nonresidential real estate deals involved sophisticated principals and thus, additional disclosures were not required.

Despite the alleged “sophistication” of nonresidential real estate principals, the bill author pointed out the asymmetry of information existing between savvy industry professionals who represent big commercial landlords, and, say, a business owner tenant who only negotiates a lease once every five years. 

Related topics:

Posted by Sarah Kolvas | Nov 26, 2014 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Public Utilities Code §§382, 399.15, 739.1, 2827, 2827.10, 2827.1, 769, 2827.1, 739.9, and 745
Added and amended by A.B. 327
Effective date: January 1, 2014

Energy rate changes

The ban on energy rate increases in California has been lifted.

Energy rate increases authorized or mandated by the California Public Utilities Commission (PUC) are subject to a phase-in schedule relative to the rates in effect before January 1, 2014. For residential customers, utilities are required to continue offering rates that default to pricing set within at least two tiers.

The first tier is to price electricity usage at or above a baseline quantity set according to statute. The baseline quantity takes into account seasonal usage and average consumption in different climates throughout the state. Subsequent tiers are adjusted for increasing amounts of energy use, to be determined by each utility.

Additionally, the PUC may also adopt new monthly charges or expand existing fixed charges to recover a reasonable portion of the costs of providing service to residential customers. Fixed charge increases are capped for low-income residential utility users.

Time-variant pricing

Beginning January 1, 2018, utilities may institute time-of-use pricing for residential customers. Time-of-use pricing imposes different energy rates depending on the time of day the energy is used. This type of pricing approximates the strain on the utility’s system during peak and off-peak hours.

Time-of-use pricing may be authorized as long as:

• pricing does not apply to customers who receive special services, such as customers who receive a medical baseline allowance and senior and dependent customers who require bill notifications be sent to a designated third-party;
• pricing does not cause unreasonable hardship for senior citizens or economically vulnerable customers in hot climates;
• pricing is set for at least the following five years;
• pricing applies to residential customers only if they have been provided with at least one year of interval usage data from an advanced meter, customer education and at least one year of bill protection during which the total amount paid  by the customer is not to exceed the amount paid under their previous rate schedule;
• residential customers are provided with a summary of available tariff options with a calculation of expected annual bill impacts, to be delivered at least once per year using a reasonable delivery method chosen by the customer; and
• residential customers are given the option to reject a time-of-use rate schedule at no additional charge.

Standard rates paid to customers who generate renewable energy

Electrical corporations with more than 100,000 service connections in California are required to set and pay a standard tariff to customers who generate energy from a renewable source, e.g., solar energy. This program is known as net energy metering.

Standard tariffs set by the electrical corporations are to be available until the earlier of:

• the corporation reaching its net energy metering program limit; or
• July 1, 2017.

The PUC will establish a separate standard tariff by December 31, 2015. This standard tariff is to be used by electrical corporations on the earlier of July 1, 2017 or the exhaustion of their respective net energy metering program limits. The goal of the PUC standard tariff is to encourage the sustainable growth of renewable energy generation after the expiration of each electrical corporation’s net energy metering program.

Editor’s note — This bill is intended to offset the disproportionately elevated rates residential energy customers in upper usage tiers paid during the energy crisis. The adjustments phase in higher rates while still ensuring low-income and otherwise vulnerable customers are not overburdened.

Read the text of the bill

Related topics:

Posted by Elizabeth T. Pardo | Mar 31, 2014 | Commercial, Investment, Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A group of developers formed a limited liability company (LLC) and limited partnership. Under the names of the entities, the developers obtained two loans to purchase multiple commercial properties with a lender who previously funded similar projects with identically structured loans. The developers entered into continuing commercial guaranties for each loan, securing the loans with different commercial properties owned by the developers and holding the developers personally liable for all the loan debt, regardless of which LLC or limited partnership signed for the loan. The loans were later sold to a successor lender on the secondary mortgage market. The developers defaulted on both loans and the successor lender foreclosed on the separate commercial properties which secured the loans, resulting in insufficient funds to cover the balance remaining on the loans in default.

Claim: The successor lender sought to recover the amount of outstanding debt from the developers under the continuing commercial guaranty, claiming the developers were personally liable as guarantors since the developers signed continuing commercial guaranties for both loans.

Counter claim: The developers claimed anti-deficiency law protects them from the successor lender’s claims as the guaranties were shams, since the developers’ close relationship with the loan officer who drew up the loan paperwork shifted their position from guarantor — a position imposing personal liability for all debt undertaken by themselves and the corporate entities they created — to obligor — a position with no personal liability for debt undertaken by any of their entities.

Holding: A California court of appeals held the developers were personally liable for the deficiency since the guaranties were not shams structured by the lender to avoid anti-deficiency law, as the developers signed the continuing guaranties with full knowledge of the guaranty stipulations. [California Bank & Trust v. Lawlor (December 24, 2013) _CA4th_]

Editor’s note — Here, the developers, as borrowers, created numerous corporate entities to shield themselves from personal liability. Due to this protection, had they not signed the continuing guaranties, they would not have been personally liable for any deficiencies on the loans.

For a guaranty to constitute a “sham guaranty” as argued by the developers, a guarantor must establish the continuing guaranty agreement was deliberately engineered by the lender to cast an obligor in the role of a guarantor with the intent of circumventing anti-deficiency law. However, the developers formed the entities prior to obtaining financing. Thus, the developers did not form the LLC and limited partnership at the request of the original lender in a ruse to avoid anti-deficiency protection and impose personal liability on the developers, regardless of their preexisting relationship.  

Simply, borrowers cannot create numerous separate entities to shield themselves from personal liability, while concurrently claiming they are not distinct from the entity for the purpose of avoiding being a guarantor personally liable for the loans. You can’t have it both ways, folks.

Related topics:

Posted by ft Editorial Staff | Sep 10, 2014 | Laws and Regulations, New Laws, Real Estate, Your Practice | 2

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

Calif. Business and Professions Code §§10087, 10100, 10152, 10166.06, 10460, 10461, 10463 and 10153.01
Added or amended by S.B. 875
Effective date: January 1, 2013

CalBRE state exam integrity

California Bureau of Real Estate (CalBRE) licensing examinees are prohibited from:

• communicating with another examinee or any person other than a proctor or exam official during the exam;
• copying answers from another examinee or permitting another examinee to copy one’s answers;
• allowing another person to take all or part of the examinee’s exam;
• removing exam materials from the exam room without authorization;
• reproducing or aiding the reproduction of any portion of the exam without authorization;
• using any devices, materials or documents during the examination which are not authorized for use, including notes, crib sheets, textbooks and electronic devices;
• failing to follow any exam instruction or rule related to exam security; and
• providing false, fraudulent or misleading information concerning education, experience or other qualification on an exam application.

Applicants who violate these rules may be barred from taking a licensing exam or from holding an active real estate license for up to three years.

Mortgage loan originator exam and endorsement

A licensee who fails three consecutive mortgage loan origination endorsement exams is now able to retest more than three times. However, they are still required to wait at least 30 days between exams, and at least six months between every three exam attempts.

Licensees who are in the military are currently able to waive their real estate license renewal requirements for the duration of their active military service. They are now also able to waive the renewal of their mortgage loan originator endorsements for the duration of their active military service.

Corporation real estate license applications

In connection with a corporation real estate license application, any officer, director or person owning 10% or more of the stock in the corporation is to provide proof of their honesty and truthfulness. The previous threshold for the requirement was any individual who owned more than 10% of the stock in the corporation.

Changes to procedure for suspension, reinstatement or denial of a license

A real estate licensee or applicant who is suspended or barred from a position of employment, management or control is now also barred from participation in a real estate licensing examination for up to 36 months.

A licensee who submits a petition for the reinstatement of their license or reduction of a penalty is required to submit their fingerprints with the petition.

Instead of automatically initiating a hearing upon denying an application for a license or mortgage loan originator endorsement, the CalBRE will now:

• provide notification of the denial;
• state the reasons for denial;
• inform the applicant they have the right to a hearing if written request is made within 60 days of the denial; and
• state the earliest date on which the applicant may reapply.

Related topics:

Posted by Nicole Jessen | Jan 24, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 5

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

Is a mortgage servicer required to offer a permanent mortgage modification to a HAMP homeowner who successfully completes a trial period plan? Read up on the recent case precedent which holds servicers’ feet to the fire.

Facts: A homeowner defaulted on their mortgage and a notice of default was recorded. The homeowner applied with the servicer of their mortgage for a loan modification under the Home Affordable Modification Program (HAMP).

The servicer and homeowner entered into a contract called a trial period plan (TPP). The TPP stated the homeowner will receive a permanent modification if they make trial modification payments and submit qualifying documents. The homeowner successfully made all TPP payments and submitted the required documents. The servicer then denied the homeowner a permanent loan modification. The servicer proceeded with foreclosure and sold the home at a trustee’s sale.

Claim: The homeowner sought to recover their money losses due to the trustee sale, claiming the servicer was obligated under HAMP to provide a permanent loan modification when the homeowner successfully complied with the terms of the TPP.

Counterclaim: The servicer claimed it complied with HAMP since it was only obligated to reevaluate the homeowner’s eligibility for a permanent modification when the homeowner successfully completed the TPP.

Holding: A California Court of Appeals held the homeowner is entitled to recover their money losses due to the foreclosure sale of their home since the servicer was obligated under HAMP to provide a permanent loan modification when the homeowner successfully fulfilled the terms of the TPP. [West v. JPMorgan Chase Bank, N.A. (2013) __ CA4th__]

A struggling HAMP marred by servicer misconduct

The federal Home Affordable Modification Program (HAMP) has performed poorly due to its structural flaws. This has resulted in HAMP’s failure to uniformly evaluate applicants and address negative equity. More recently, HAMP has appeared in a slew of cases in which servicers qualify homeowners for a trial HAMP modification only to complete foreclosure after the homeowner fully complies with the trial payments and documentation requirements.

What gives?

Despite HAMP’s flaws, if a homeowner decides HAMP loan modification with reduced payments and extended amortization is the best solution for their financial situation, they are entitled to an accurate evaluation of their HAMP application. Further, they are entitled to a permanent modification if they comply with the terms of the TPP contract they enter into with their servicer. As recent California cases have illustrated, the loopholes enabling a servicer to back out of providing a permanent modification for a qualified homeowner have been sealed shut by California courts. It’s about time.

What is HAMP?

In 2008, congress enacted the Emergency Economic Stabilization Act (EESA) in response to the Great Recession. The EESA included the Troubled Asset Relief Program (TARP) which charged the Secretary of the Treasury with developing a program to provide relief to struggling homeowners while offering incentives to the loan servicers of homeowner mortgages.

The Secretary designated $50 billion under HAMP to assist distressed homeowners avoid the loss of their home by foreclosure.

Homeowners who qualify for HAMP receive a permanent modification. HAMP’s strategy to prevent foreclosures is to reduce a homeowner’s monthly mortgage payment to 31% of their pre-tax, monthly income. [MHA Handbook v4.3]

HAMP eligibility

HAMP established a three step process to determine if a homeowner’s mortgage is eligible.

First, the mortgage is to meet threshold requirements:

• it is a first lien mortgage originated on or before January 1, 2009;
• it is secured by the borrower’s primary residence;
• monthly payments are greater than 31% of the borrower’s monthly income; and
• it has a current principal balance  no more than $729,750 for a one-unit home.

For a complete list of threshold requirements and exceptions, see the HAMP Supplemental Directive 09-01.

Second, the servicer implements a waterfall method, going through a series of modification steps set out by HAMP until the borrower’s monthly mortgage payment is reduced to 31% of monthly pre-tax income.

The waterfall method includes:

• (Step 1) adding accrued interest to principle and eliminating late fees, if the homeowner qualifies for a permanent modification;
• (Step 2) reducing the interest rate to as low as 2%;
• (Step 3) extending the loan term up to 40 years; and
• (Step 4) deferring a portion of the principal interest free, until the final/balloon payment is due. [HAMP Supplemental Directive 09-01]

Third, after determining an appropriate modification using the waterfall method, the servicer conducts a Net Present Value (NPV) test.

The NPV test is a tool used to determine if a HAMP modified mortgage is to be of greater value to the servicer than the value of the mortgage unmodified.

If the NPV result is negative, foreclosure is more beneficial to the servicer and the servicer is not required to offer a modification. If the NPV result is positive, modifying the mortgage is more beneficial to the servicer and the servicer is required to offer the homeowner a trial period plan (TPP). [MHA Handbook v4.3]

Homeowners complete a trial period run

Once a homeowner is deemed eligible for HAMP, the servicer provides the homeowner with a TPP, a temporary, short-term modification. The TPP typically lasts three to four months and outlines a payment schedule for all monthly payments due during the TPP. The homeowner needs to successfully complete the TPP as a trial run to receive a permanent modification.

The servicer is not required to collect or evaluate documents to verify the homeowner’s information in order to qualify the homeowner for the TPP. Thus, verification documents are not required prior to entering into the TPP.

However, the homeowner is to submit verification documents to the servicer with the signed TPP to initiate the TPP.

To begin the TPP, the homeowner returns to the servicer:

• the signed TPP;
• a Hardship Affidavit;
• income verification documents; and
• the first month’s TPP payment to the servicer.

The servicer then uses the submitted homeowner documents to ensure all information the servicer used to determine the homeowner’s eligibility is accurate. If the servicer determines any of the information was inaccurate and the homeowner is not eligible, the servicer is required to immediately notify the homeowner they are not eligible for HAMP.

If the servicer determines the homeowner is eligible, the servicer immediately signs and sends the TPP to the homeowner.

The servicer then prepares the terms of a permanent modification in a Home Affordable Modification Agreement (HAMA) and sends it to the homeowner after receiving the homeowner’s second TPP payment. This affords enough time for the homeowner and servicer to execute the agreement by its effective date at completion of the TPP.

Upon successful completion of the TPP, the permanent modification goes into effect. [HAMP Supplemental Directive 09-01; MHA Handbook v4.3]

If the homeowner successfully completes the TPP and returns the signed HAMA to the servicer, the servicer is obligated to provide the permanent modification if the qualifying conditions remain unchanged during the TPP.

In recent HAMP cases, this is the disputed fact. Servicers contest they were not obligated to provide the permanent modification for a number of reasons, which are explored below.

Servicer participation in HAMP — incentives sweeten the deal

HAMP participation is mandatory for servicers of Government-sponsored enterprise-(GSE; i.e. Fannie Mae and Freddie Mac) owned or guaranteed mortgages and voluntary for servicers of non-GSE mortgages. [Making Home Affordable FAQ’s]

A substantial list of non-GSE servicers have agreed to participate and each sealed the deal with a Servicer Participation Agreement (SPA).

Related material:

List of non-GSE servicers participating in HAMP

Once a non-GSE servicer signs an SPA, it becomes obligated to identify homeowners who have or who are likely to default to evaluate them for HAMP eligibility. The SPA requires the servicer to modify the mortgages of eligible homeowners who complete a TPP and submit the proper documentation.

The servicer receives $1,000 and other incentives in exchange for each permanent modification the servicer enters into.

When a servicer signs an SPA, they agree to comply with all HAMP guidelines and procedures as well as all supplemental literature released by the Treasury. [Wigod v. Wells Fargo Bank, N.A (2012) 673 F3d 547]

Where servicers fall short

With HAMP participation, servicers:

• are only required to permanently modify a mortgage if it is in their best interest to do so; and
• receive monetary incentives for entering into permanent modifications.

What can go awry when the servicer’s bottom line is so revered under HAMP?

Servicers are being taken to court for refusing to offer permanent modifications after homeowners qualify for and comply with the requirements of the TPP.

The average suspect servicer is not versed in HAMP procedure and fails to create a sufficient infrastructure to manage HAMP applicants’ mortgages. As a result, the servicer makes careless mistakes which result in the improper denial of a homeowner’s application for a permanent modification. The end result is improper foreclosure.

Supplemental directives set the standards

Noncompliance with supplemental regulations is at the heart of recent HAMP cases. Here’s why: though servicers agree in the SPA to comply with all further HAMP instructions released by the Treasury, many servicers neglect to observe the Treasury Supplemental Directive 09-01 requiring servicers to offer a permanent modification to homeowners who comply with all conditions of the TPP.

If a servicer evaluates a homeowner as qualified before and immediately after issuing a TPP, the servicer has determined it is most beneficial for the servicer to modify the mortgage. Thus, a servicer’s refusal to provide a permanent modification on the homeowner’s successful completion of the TPP is either the result of:

• organizational hullabaloo; or
• the servicer’s failure to accurately evaluate the homeowner early in the TPP according to HAMP procedure.

For example, in West v. JPMorgan Chase Bank, N.A., the homeowner committed to a three month long TPP. The homeowner did not receive any communication from the servicer before the TPP concluded and continued making payments. After making an additional three payments, the servicer confirmed receipt of the homeowner’s verification documents and advised the homeowner to continue making the monthly payments.

Another three months later, the servicer notified the homeowner they were ineligible for HAMP. The servicer’s determination was based on an NPV test for which it improperly used outdated values.

The servicer promised to recalculate the NPV using correct values, but instead sold the homeowner’s home at a trustee’s sale two days later.

What went wrong?

First, the servicer did not verify the homeowner’s eligibility until six months after the TPP commenced. The servicer was to immediately determine the homeowner’s eligibility upon receipt of the homeowner’s verification documents and notify them of either determination.

Second, the servicer failed to execute verification of eligibility properly.

Third, the servicer failed to correct its error and foreclosed.

Ultimately, the servicer did not do what was required of it when the homeowner completed the TPP and submitted all documentation: offer a permanent modification.

Slimy servicers try to get off the hook

Once a homeowner catches a servicer’s sloppy work and sues, the servicer sets to work finding a loophole to avoid fault.

In several cases, the servicer claims it was not obligated to offer a permanent modification because, in the TPP, the servicer only promised to reevaluate the homeowner upon compliance with the TPP. However, because Supplemental Directive 09-01 requires the servicer to offer the permanent modification upon compliance with the TPP, the promise of permanent modification is implied in the TPP. [West v. JPMorgan Chase Bank, N.A. (2013) __ CA4th__; Wigod v. Wells Fargo Bank, N.A (2012) 673 F3d 547]

In one case, the servicer denied the homeowner a permanent modification because the homeowner did not have their signature notarized on a document, despite the document containing no instruction to obtain notarization. [Barroso v. Ocwen Loan Servicing (2012) 208 CA4th 1001]

The HAMA has also played a role in slimy servicers’ pursuit of innocence. For instance, a homeowner will fulfill all requirements, including returning the signed HAMA to the servicer. The servicer does not sign or return the HAMA to the homeowner, thus preventing the execution of the permanent modification. The servicer than cites their own failure to execute the HAMA as a valid reason for not offering a permanent modification to the homeowner. [Barroso v. Ocwen Loan Servicing (2012) 208 CA4th 1001; Corvello v. Wells Fargo Bank (9^th Cir. 2013) __ F3d __]

This strategy, along with the others, has been rejected by California courts.

Related articles:

If a borrower meets all terms of a trial modification and the lender does not provide notice of failure to qualify, must the lender grant the modification?

May a lender deny a permanent HAMP modification when the lender fails to meet the conditions of the trial period plan?

Agents: knowledge is power

Homeowners will continue to filter into HAMP until December 31, 2015, leaving plenty of time for servicers to improperly process more HAMP participants and shirk off responsibility.

Servicers are to heed the outcomes of these recent cases. Better management of homeowners’ mortgages, accurate and timely communication with homeowners, and compliance with HAMP procedures are necessary to ensure fair treatment of HAMP applicants.

If California servicers fail to improve, courts are prepared to hold them accountable. However, cornering homeowners into taking legal action is far from justice.

Agents best assist homeowners by informing them about the risks of HAMP before they apply. In addition to educating homeowners on HAMP as an imperfect solution and the prevalence of servicer misconduct, agents are to prepare homeowners for the rigorous application process.

Servicers are rigid and are ready to reject homeowner applicants over the slightest noncompliance. Agents are to warn homeowners to absorb all instructions and follow them to the T.

Timely payments are also crucial. The homeowner’s TPP payment is to be physically in the office to which it is due on the due date, not postmarked on the due date.

A HAMP applicant who has not defaulted, but is at risk of default, is wise to save the difference between the monthly payment amount of the original loan and the monthly payment amount of the reduced TPP, if possible. If the HAMP applicant is then denied the permanent modification – either properly or improperly – they will have the money on hand to bring their loan current.

Due to the complexities HAMP and frequent occurrences of servicer misconduct, an agent may choose to refer the homeowner to a Department of Housing and Urban Development (HUD)-approved counselor who can further assist them.

Bottom line: the real estate community needs to work together to educate homeowners and ensure responsible lending behavior.

­

Related topics:
home affordable modification program (hamp), negative equity, trial period plan (tpp), troubled asset relief program (tarp)

Posted by Sarah Kolvas | Aug 20, 2014 | Investment, Laws and Regulations, Real Estate, Recent Case Decisions, Tax | 0

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

Facts: A limited liability company (LLC) owns a parcel of real estate. The LLC enters into a purchase agreement with an investor to sell the real estate to an entity owned by the investor. Before any of the obligations under the purchase agreement are fulfilled, the purchase agreement is mutually terminated.

Instead, the investor and their spouse, through themselves and various entities, enter into a purchase agreement to acquire 100% of the membership interests in the LLC. However, no person or entity acquires more than 50% interest in the LLC. Likewise, no individual with an ownership interest in the entities indirectly acquires more than a 50% interest in the LLC. Title to the real estate remains vested in the LLC.

On closing the sale of the membership interests in the LLC, the county assessor reassesses the property. The property’s assessed value is set at the property’s current market value. The LLC, now controlled by the investor, pays the property taxes based on the reassessed value.

Claim: The LLC seeks a property tax refund, claiming the county wrongfully reassessed the property since reassessment of property owned by an LLC is triggered only if the transfer of LLC membership results in any one individual or entity acquiring more than a 50% interest in the LLC.

Counter claim: The county claims the reassessment was proper since the primary intent of the sale of 100% of the membership interests in the LLC was to avoid property tax reassessment.

Holding: A California court of appeals held the LLC was entitled to a property tax refund since no one individual or entity acquired more than a 50% ownership interest in the LLC and thus the property owned by the LLC was not subject to reassessment. [Ocean Avenue LLC v. County of Los Angeles (June 3, 2014)_CA4th_]

Proposition 13 restricts local revenues — again

Proposition 13 has gaping loopholes which California’s legislature continually fails to close, as exemplified by the Ocean Avenue case. For the purposes of reassessment, a property’s assessed value is the basis for the amount of property taxes its owner is obligated to pay. However, that value is static (but for the annual maximum increase of 2%) from the moment it is set, unless reset at the market value of the property on a change of ownership. [Calif. Constitution Article 13A §§1(a)]

Fairly straightforward, right? But it does create a corruptible ambiguity: what actually constitutes a change of ownership?

A change of ownership is the transfer of the ownership of real estate. [Calif. Revenue & Tax Code §60]

However, the change of ownership of an LLC (or other legal entity) does not constitute a change of ownership of the real estate owned by the entity, unless a single individual or entity acquires more than 50% of the membership interest in the LLC. [Rev & T C §64]

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

To the benefit of buyers of property vested in corporations, LLCs and partnerships, this strategic maneuvering deprives communities of millions in tax revenue.

In stark contrast to income properties vested in LLCs, homebuyers are bound to shell out property taxes based on the current value of a home on the date they buy it. The average homebuyer operates outside of the world of sellers with LLC vestings. Even if a homeowner were to find such a seller, most homebuyers are typically unable to fractionalize their acquisition of ownership into less than 50% ownership interests.

Additionally, an LLC vesting for a homeowner causes the homeowner to lose the right to:

• claim a homeowner’s exemption;
• transfer the assessed value on to a replacement home in retirement; or
• pass ownership without reassessment to family members.

Related article: Prop 13 renders homeownership less attainable

Parsing and dividing ownership

The division of an individual’s investments among different entities is permissible conduct. Thus, an individual may acquire de facto control over the ownership of a property through separate controlled entities and avoid reassessment. Yes, it is a shell game, but it’s presently permitted.

Consider the allotment of ownership interests in this particular case. Membership interests in the LLC owning the property were sold as follows:

• 49% to a trust benefitting the investor’s spouse;
• 42.5% to a limited partnership (LP) which was owned by the investor; and
• the remaining 8.5% to an LLC, the majority of which was also owned by the investor.

In cunning Prop 13 fashion, the investor’s multiple interests effectively acquired about 48% ownership interest in the property. Meanwhile, the spouse purchased a separate 49% ownership interest through wealth vested in a trust arrangement for the benefit of the spouse.

Together, the spouses acquired over 97% of the ownership interest in the LLC owning the property. However, the transfer of interests to spouses under these circumstances is considered separate. [Board of Equalization Property Tax Rule 462.180]

When the spouses in this case collectively purchased 97% of the member ownership interests in the LLC, their interests were not combined. Thus, for tax reassessment purposes, though a majority ownership interest in the LLC was transferred to two spouses, a change of ownership of the property did not occur as no person or entity acquired more than 50% of the membership interest in the LLC.

A known flaw

Abuse of Prop 13 is not unknown to county assessors. When a transfer of LLC interests owning a property has been strategically manipulated to evade property taxes, is there any way for a county to enforce assessment?

No. At present, California sanctions these abuses.

In this case, the county attempted to expose the baffling exploitation behind this web of investment interests by calling upon the substance over form doctrine. The doctrine, frequently used in federal income tax interpretations, considers the entire transaction, going beyond the final documented results of the sales transaction to determine its underlying objective and economic reality. [Commissioner v. Court Holding Co. (1945) 324 US 331]

In Ocean Avenue LLC, the property in question was initially agreed to be sold to a single entity owned by the investor. However, the purchase agreement was scrapped immediately before closing. Instead, a new arrangement — a replacement — was agreed to on the same day the original purchase agreement was cancelled.

The new terms of the purchase gave the investor full control over the property vested in the LLC by way of assigning 100% ownership of the membership interest in the LLC to separate persons — individuals and entities affiliated with the investor. The arrangement neatly circumvented a property tax reassessment and the consequential property tax increase.

Here, the existence of the aborted purchase agreement indicated the investor’s ultimate intent was without doubt to purchase the property. Though the purchase agreement was not the final binding document agreed to by the parties, it fully revealed their objectives.

However, the substance over formreasoning did not prevail. The investors were shielded from reassessment since federal income tax analysis was not applied to a transaction governed by more specific and contrary state property tax laws.

Potential for equitable conversion

This case also poses questions about how applicable the principle of equitable conversionis to tax reassessment cases. The doctrine, when applied to real estate, holds a buyer is granted equitable title to the property upon entering a purchase agreement. The buyer is then bound to complete the purchase of the property at a later date.

Here, the county argued the initial agreement to acquire the property was enforceable. Thus, the property was originally transferred in whole to the investor’s initial purchasing entity, triggering property tax reassessment.

However, equitable conversion is enforceable only when the terms of the agreement are met by the seller and buyer. Here, both parties failed to satisfy the terms of the agreement. Instead of enforcing it, they mutually terminated the agreement in favor of a new one with preferable tax results for the buyer.

Further, the initial agreement did not meet the state’s definition of a transfer since it did not grant the investor’s initial purchasing LLC entitlement to revenue from the operations of the property until the date of closing. [Rev & T C §60]

So, what is the takeaway here, dear reader?

Prop 13 garners a lot of vociferous support from many members of the real estate community. However, it does have its known deficiencies, most notably its disproportionate impact on new homebuyers who subsidize existing homeowners through payment of higher property taxes. Let’s not also forget the way Prop 13’s so-called tax haven (for some) locks homeowners in place by discouraging them to relocate for fear of increased property taxes – an effect which inevitably impacts unemployment rates in a market that otherwise rewards mobility and optimism.

Moreover, Prop 13 is also the perfect conduit for property tax avoidance by investors — and it is 100% legal. Though county assessors may be privy to the ways Prop 13 is exploited, their hands are tied. As long as Prop 13 rules, investors may dodge property tax increases and legacy owners avoid paying their pro rata share of local taxes. All the while, first-time and move-up homebuyers disproportionately shoulder the burden of paying for local governmental services.

Related articles:

Addressing the Prop 13 partisans

Volume 7 of the first tuesday Realtipedia, Real Estate Matters (Chapter 33: “Reassessing” California’s property tax)

When will the loophole close?

Some small relief may be found in recent California legislation. Assembly Bill 2372, currently awaiting further amendment, proposes to redefine a change of ownership in property vested in a corporation, partnership, LLC or other business entity.

Under the bill, the cumulative transfer of at least 90% of the interest in an entity owning real estate through one or more transactions triggers reassessment, whether or not one individual or entity obtains majority control.

The proposed amendments do prevent members of an LLC, like the ones in Ocean Avenue, from tactfully dividing all membership interests in the LLC to transfer full ownership and sidestep reassessment of LLC-vested properties.

However, requiring the acquisition of at least 90% ownership interest does nothing to prevent investors from acquiring majority ownership in a property-owning entity — up to 89% — while still circumventing property reassessment. The seller need only retain a meager 11% ownership in the entity and reassessment is swiftly avoided.

Thus, in its current configuration, this bill offers only minor improvements, leaving Prop. 13’s loopholes wide open.

Stay tuned to the first tuesday journal as we report on the progressions in this contentious issue.

Related article: Has hell frozen over? Tax payer group drops opposition to Prop. 13 changes

Related topics:
prop 13, property tax, proposition 13

Posted by Matthew Shade | Jan 8, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: An owner of improved residential property and undeveloped land took out a loan secured by a trust deed encumbering both. In the event of default, a trust deed provision called for the properties to be sold at foreclosure in any order. However, the lender verbally assured the owner the undeveloped land was to be sold first if foreclosed. The owner defaulted on the trust deed and the lender foreclosed on the residential property first.

Claim:  The owner sought to pursue their money losses for wrongful foreclosure from the lender, claiming the lender engaged in unfair business practices since it foreclosed on the residential property first after verbally promising the owner it would, on a default, foreclose on the vacant land first.

Counterclaim: The lender claimed it had not engaged in unfair business practices since the terms of the trust deed stated the properties were to be foreclosed and sold in any order.

Holding: A California court of appeals held the owner may not pursue the lender for money losses since a provision in the trust deed securing the loan stated the properties were to be foreclosed on in any order determined by the lender. [Wilson v. Hynek (2012) 207 CA4th 999]

 

You can’t hold a lender to their word

This case is yet another warning to borrowers about “promise-them-anything” lending: never rely on a lender’s spoken word. Unless you believe in the fantastical tooth fairy, lending is an asymmetrical power relationship, not one of a willing lender and a willing borrower sharing a common goal and rooted in mutual consent. Remember, the interests of the lender and borrower are at opposite ends of a financial teeter-totter — they are diametrically opposed. It is a relationship of polarities: rentier and debtor.

The rigged lending-game requires borrowers to rely solely on the lenders’ verbal assurances and proposals to get a mortgage. Conversely, the lender bears no burden and suffers no consequences for failure to follow through on any of their oral or unsigned written promises.

Always get it in writing

Consider an owner planning to make improvements to their industrial property. The owner applies for a mortgage to upgrade the facilities, add equipment and construct additional improvements. The owner has a long-standing business relationship with the lender, having borrowed from it in the past.

The loan officer processing the mortgage orally assures the owner it will provide permanent long-term financing to refinance the short-term financing the owner will use to fund the improvements. Nothing is put to writing or signed. Relying on the lender’s oral assurances, the owner enters into a series of short-term loans and credit sales arrangements to acquire equipment and improvements.

The loan officer visits the owner’s facilities while improvements are being installed and constructed. The lender orally assures the owner they will provide long-term financing again.

On completion of the improvements, the owner makes a demand on the lender to fund the permanent financing. However, the lender refuses. The owner is informed the lender no longer considers the owner’s business to have sufficient value as security to justify the financing.

The owner is unable to obtain permanent financing with another lender. Without amortized long-term financing, the business fails for lack of capital.  The business and property are eventually lost to foreclosure by the short-term financing lender. The owner seeks to recover money losses from the lender, claiming the lender breached its commitment to provide financing.

Can the owner recover for the loss of their business and property from the lender?

No! The lender never entered into an enforceable loan commitment. Nothing was placed in writing or signed by the lender which unconditionally committed the lender to specific terms of a loan. [Kruse v. Bank of America (1988) 202 CA3d 38]

And always get it signed

Consider another property owner in default on their mortgage. The owner is in negotiations with the lender to modify the mortgage.

The lender sends the owner a mortgage modification agreement. However, the agreement is unsigned by the lender and payment calculations in the document are incorrect. The owner notices these errors and contacts the lender.

The lender instructs the owner to cross out the incorrect information and enter corrections, sign the agreement and send it to the lender with the down payment that it calls for. The lender assures the owner the agreement will be corrected and finalized. The agreement bars a foreclosure if the owner follows all the terms of the agreement.

The owner sends the down payment and the signed agreement with the noted corrections to the lender. The owner fully performs all obligations under the modification agreement. However, the owner never receives a copy of the corrected agreement with the lender’s signature.

Later, the lender files a notice of default (NOD) and begins foreclosure proceedings. The owner seeks to stop the foreclosure, claiming the mortgage modification agreement is enforceable since the owner followed all the terms dictated by the lender.

Is the agreement enforceable?

No! The mortgage modification agreement is not enforceable. Here, the lender never signed the written agreement they had orally agreed to. Even though the lender prepared the written agreement, orally assured the owner about its terms and accepted the owner’s down payment, the agreement signed by the owner was not also signed by the lender. Thus, the agreement was always oral, and in turn unenforceable, due to the requirements of the statute of frauds calling for a writing signed by the person or entity who is charged to perform. [Secrest v. Security National Mortgage Loan Trust (2008) 167 CA4th 544]

Written word > spoken word

Under the statute of frauds, the following transactional agreements need to be evidenced in a writing signed by the person charged to perform to be enforceable:

• the sale of real estate;
• broker employment agreements [See first tuesday Form 505 and 506];
• a lease agreement with a term exceeding one year;
• escrow instructions [See first tuesday Form 401];
• any loan secured by a trust deed; and
• any loan commitment not secured by a trust deed which exceeds $100,000. [Calif. Civil Code §1624]

Typically, most of these types of transactions are reduced to writing to conform to the dictates of the statute of frauds, except for mortgage commitments situations. In these scenarios, the written word controls, despite verbal representations to the contrary made by any of the parties.

Moreover, mortgages of any dollar amount are required to be entered into in a signed writing. Thus, until all mortgage documents have been signed by the borrower and the lender, disregard any verbal or written but unsigned promises by the lender. They’re as substantial as smoke and mirrors.

It is common for lenders to promise low rates, charges, mortgage amounts and advantageous funding timetables to induce a borrower to apply for a mortgage. Lenders document these promises in writing, but frequently without a signature. When the time comes for the lender to fund and close, the lender unapologetically explains markets rates and costs have gone up. Here, the borrower cannot enforce the lender’s promises. [Calif. Civil Code §1624]

Relying on the final mortgage commitment

The only communication with a lender that matters in the mortgage process is what the lender ultimately does when the time comes for funding.

Further, the only writing that counts and may be relied upon is the final mortgage commitment on single-family residence (SFR) mortgages delivered three days before closing, and the trust letter at closing instructing escrow when and how to use the funds the lender has forward. [CC §2922]

Thus, the lender-borrower relationship is one of power, not one of an open market arrangement.

Related reading
Rate locks: tin shields or the real deal?

Enforceable agreement to grant a permanent modification

Now consider a lender who signed a Servicer Participation Agreement with the U.S. Department of Treasury under the Home Affordable Modification Program (HAMP). The lender agrees to follow the Treasury’s guidelines and procedures in modifying mortgages.

A distressed-homeowner applies to the lender for a modification of their mortgage. The lender prepares a written Trial Period Plan (TPP) which states the homeowner will receive a permanent mortgage modification if they make trial modification payments and submit qualifying documents.

The borrower signs the TPP and returns it, makes all trial modification payments and submits the required documentation to confirm eligibility for the permanent modification.

The lender never agrees to give the homeowner a modification nor do they notify the borrower of any failure to qualify. However, under HAMP, the lender is contractually obligated to provide a modification when the homeowner meets all the requirements under the TPP. The homeowner seeks to compel the lender to grant a permanent modification since they followed all the terms of the written TPP.

Is the lender compelled to grant a permanent modification?

Yes! The borrower followed all the terms of the written TPP, and thus the lender was compelled to grant the permanent modification since they had signed the Servicer Participation Agreement under HAMP. [Corvello v. Wells Fargo Bank (9^th Cir. 2013) 728 F3d 878]

Related reading
The problem with HAMP

Thus, once a lender signs a written agreement, they are bound to follow it. This commitment is the reason lenders rarely enter into signed written promises regarding a mortgage application. Nothing is signed by the lender which is enforceable except for the final three-day mortgage commitment and their conditional delivery of mortgage funds to escrow.

Lenders do not become obligated to make a mortgage, until they have funded and the documents recorded – none of which are signed by the lender.

Written agreements are a two-way street

Consider a broker who arranges a mortgage for a property owner, funded by a private money lender. The borrower signs the note and the lender provides the funds.

The lender is structured as an entity and is solely owned by the broker. The broker does not receive a broker fee and none is paid on the mortgage transaction. The note carries an interest rate greater than the legal threshold set by usury limitations.

The owner defaults on the trust deed and the lender forecloses. The borrower seeks to invalidate the foreclosure, claiming the interest earnings violated usury limitations on mortgages.

Is the foreclosure valid when the interest rate exceeded usury limitations?

Yes! Here the loan is exempt from usury limitations since a licensed broker arranged the loan and received compensation as the owner of the lender.  The borrower agreed to the interest rate on signing the note, and that note is enforceable by foreclosure under the trust deed securing the debt owed. [Bock v. California Capital Loans (2013) 216 CA4th 264]

Just as lenders are held to signed written agreements, so are borrowers. Courts resist invalidating written agreements entered into by a lender and borrower if they can find a basis for enforcing them. Thus, any borrower hoping to avoid performing on a signed written mortgage agreement has an uphill battle — one they are unlikely to win.

Agents provide protection for their buyers

Agents and brokers, the professional gatekeepers to the entry of real estate, know the deceptive practices lenders use to take advantage of borrowers. Thus, they are equipped with knowledge and experience to come to the aid of their client when dealing with lenders.

Related reading
Lenders vs. owners and the real estate interest of each

In order to prepare a buyer for the mortgage application process, agents need to advise their buyer of the likely scenarios they will encounter in the mortgage application process. Again, the relationship between lender and borrower is inherently adversarial. Thus, the informed buyer is best able to anticipate and defend themselves when confronted with unscrupulous eleventh-hour lender tactics.

Always advise buyers seeking a purchase-assist mortgage to “double app;” that is, submit mortgage applications to a minimum of two lenders as recommended by the US Department of Housing and Urban Development (HUD) and the California Bureau of Real Estate (CalBRE). Multiple competitive applications keep lenders vying for your buyer’s business up to the very last minute – the ultimate moment of funding, when commitments truly are commitments.

Related topics:
home affordable mortgage program (hamp), trust deed

Posted by Sarah Kolvas | Aug 12, 2014 | Buyers and Sellers, Feature Articles, Real Estate, Your Practice | 6

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

Concerned about your fees if a buyer fails to close escrow? Read on to find out how to handle a buyer’s breach of a purchase agreement.

A buyer’s broker is owed a fee if their diligent efforts result in the buyer acquiring a suitable property.  But collecting a fee becomes more analytical when the buyer breaches the agreement. As always in real estate transactions, the answers are in the provisions or lack of provisions – for both the buyer’s broker and the seller’s broker.

Cancellation for a justifiable reason

The first step is identifying whether the buyer’s cancellation of a transaction is a breach of their obligation under a purchase agreement or escrow instructions to acquire the property. A buyer (or seller) who refuses to hand escrow the instruments (funds and documents) needed to close the transaction or otherwise comply with the escrow instructions has breached the agree­ment, unless their nonperformance is excused.

The buyer’s nonperformance is excused, and the refusal to close escrow is not a breach of the purchase agreement, if:

• a contingency provision exists authoriz­ing the buyer, seller or person ben­efitting from the contingency to terminate the purchase agreement on the failure of an event to occur or on disapproval of data, information, documents or reports;
• the  event fails to occur or the condition reviewed is disapproved for cause; and
• the person authorized or benefiting from the contingency provision acts to terminate the agreement by delivering a notice of cancellation prior to the expiration of their right to cancel. [See first tuesday Form 183]

The buyer’s right to exercise their option to cancel is triggered when a valid reason exists. However, they may choose not to cancel or simply fail to serve a notice of cancellation on the other party. Without a notice of cancellation, their option to be excused from further enforcement expires. Unless a separate justification for not closing and acquiring the property exists, the buyer is obligated to perform – close escrow.

Consider a buyer who enters into a purchase agreement containing a contingency provision calling for the buyer to review and further approve a property operating cost sheet to be provided by the seller, called an income and expense statement or an Annual Property Operating Data (APOD) sheet depending on the buyer’s use of the property. The buyer’s receipt of the data commences a period of review by the buyer during which the buyer will determine whether to exercise their right to cancel the pur­chase agreement as allowed by the contingency provision. [See first tuesday Form 352]

The property operating data provided by the seller confirms the general information received by the buyer before making the offer. However, the breadth and depth of the informa­tion seems inadequate for a large, long-term in­vestment. Thus, the buyer has their agent ask the seller to supply additional data and information, including access to all supporting documentation regarding the property’s operating history.

The seller claims the information already handed to the buyer sufficiently discloses the property’s operating history and refuses to deliver additional information. The buyer cancels the purchase agreement for lack of sufficient information about the property’s income and expense history.

Has the buyer breached the agreement by terminating the transaction based on the seller’s refusal to provide more information about the property under the contingency provision?

No! The seller has not fulfilled their obliga­tion to deliver sufficient information to allow the buyer to complete their review and make an informed decision about the acceptability of the property’s operations.

The seller’s compliance with the buyer’s request for more in­formation on the subject of the contingency provision is an obligation owed the buyer by the seller. The seller who fails to comply with a reasonable request for more data, information, documents and reports made by the buyer in good faith to assist in their decision making pro­cess of approval or disapproval of the condition or event under review has breached their obligations owed the buyer.

Thus, the seller has materially defaulted on their obliga­tions, a breach which excuses the buyer’s fur­ther performance until the seller complies with the requests. Alternatively, the seller’s breach of the provision allows the buyer to cancel the agreement by serving a notice of cancellation or pursue enforcement by a specific performance suit.

Remember: before a buyer may effectively cancel a transaction, they need to first “place the other person — the seller — in default.” Thus, the buyer may not be in default under the purchase agreement on the date sched­uled for the seller’s performance or the event to occur if they intend to cancel based on the seller’s failure to perform.

For the buyer to place the seller in de­fault, three transactional facts need to exist:

• a scheduled date for the occurrence of a condition or event crucial to continued performance of the transaction has passed;
• the condition or event called for under a contingency provision in the purchase agreement did not occur by the scheduled date; and
• the buyer has fully per­formed all activities required of them to close escrow on the transaction.

Here, the seller has not performed as agreed by the scheduled date, called a condition prec­edent to the buyer’s further performance. And since the buyer has performed or is ready, willing and able to perform at the time of cancellation all activities they were obli­gated to perform in order to close escrow, called conditions concurrent, the buyer may justifiably cancel the transaction.

Brokerage fee protection and the seller

When a buyer has not met their own obligations under the agreement and cancels, they have breached the agreement. On their breach, the buyer may be held liable for losses suffered by others.

Consider a buyer who contacts a real estate sales agent to lo­cate suitable properties for review with the intent to buy. The agent agrees to undertake the obligation of locating the desired property, but fails to discuss or obtain an oral or writ­ten commitment from the buyer regarding payment by anyone of a fee for services pro­vided the buyer by the agent and their broker.

The agent locates a property suitable for the buyer’s purposes. The agent prepares an offer to purchase, which the buyer signs. The purchase agreement form does not contain a fee provision calling for the buyer to be responsible for broker fees in the event the buyer breaches the agreement. Worse, the buyer’s agent does not disclose to their buyer client the amount of the benefits the buyer’s agent is receiving for their representation of the buyer, a breach of their fiduciary duties.

The seller signs the acceptance provision. Con­currently, the seller in a separate document agrees, directly or indirect­ly, to pay the seller’s broker and the buyer’s broker a fee on completion of the sale. The buyer does not sign and is not a party to this separate fee agreement. Again, the buyer is not told what fees their broker is receiving, an ethics violation.

The acceptance is returned to the buyer.

The separate fee agreement between the seller and seller’s agent is retained by the seller’s broker. The seller’s broker enters into an oral agreement (it’s enforceable) with the buyer’s broker to share any fee received on the transaction.

All is well until the buyer, without justification or excuse, fails to complete the purchase.

Is the seller protected? Indeed, the seller, due to the buyer’s breach of the purchase agreement, may make a demand on the buyer for their money losses incurred due to the buyer’s breach.

However, the seller’s money losses may not include the amount of the brokerage fee since the seller has not paid and does not owe a brokerage fee on a buyer’s breach.

Only the buyer’s broker is due a fee

Continuing with the above example, the buyer’s agent makes a demand on their buyer to pay the buyer’s broker their fee earned when the buyer entered into the purchase agreement. The buyer’s broker does not wait for the seller to make claims for the buyer to perform and close the transaction.

The buyer’s broker claims the purchase agree­ment offer signed by the buyer is also subject to an implied promise from the buyer to close the transaction so the broker will receive their fee to be paid by the seller.

The buyer claims their broker is not entitled to a fee from the buyer. The only fee provision which exists merely entitles the brokers to fees established in a separate fee agreement, which the buyer did not enter into with their broker.

But is the buyer’s broker able to collect a fee from the defaulting buyer who never agreed, orally or in writing, to pay any fees?

Yes! The buyer by their conduct retained the services of the broker but did not promise, orally or in writing, to pay a brokerage fee if the broker’s agent located suitable property sought by the buyer to purchase. However, on entering into a purchase agreement, the buyer knew the buyer’s broker was to receive a fee from the seller or the seller’s broker on closing. The buyer’s offer to purchase the prop­erty contained an implied promise by the buyer to their broker not to wrongfully interfere with the payment of their agent’s brokerage fee.

Here, the payment of the fee is the burden of the breaching buyer alone. The seller is not compelled to contribute since the payment of the fee by the seller was contingent on the close of escrow, which did not happen. [Chan v. Tsang (1991) 1 CA4th 1578]

Conversely, the seller’s broker has no contractu­al right, expressed or implied, to collect a fee from the breaching buyer. The seller’s broker lacks:

• a client relationship with the buyer which carries with it the implied promise to avoid interference with the payment of a fee; and
• a written agreement signed by the buyer to pay the fee in lieu of the seller on the buyer’s breach.

The purchase agreement provides the solution

A fundamental rule of real estate practice for ju­dicial enforcement of fee arrangements requires brokerage fee agreements to be in writing and signed by the parties responsible for payment.

However, a common flawin the drafting and placement of brokerage fee provisions in many purchase agreement forms is the failure to include the entire fee provisions in the body of the buyer’s purchase agreement offer, i.e., above the buyer’s signa­ture, sometimes referred to as “within the four corners of the contract.”

When the fee provision is placed within the buyer’s of­fer, the agreement explicitly states the seller will pay the fee if the transaction closes. Further and to protect all the brokers involved, it needs to state that if the sale does not close due to a breach, the breaching party will pay the agreed fees. Thus, all parties to the purchase agreement have agreed on what amount they owe, when they owe it and to whom it will be paid. [See first tuesday Forms 150 §15 and 159 §15]

Brokers as beneficiaries

When a buyer and seller agree in writing to the payment of a brokerage fee, their brokers become third party beneficiaries to the purchase agreement. For example, if either the buyer or the seller enforces the purchase agreement con­tract against the other by specific performance, the brokers will be paid on closing as part of the terms contained in the purchase agreement.

However, when the agreement is separately agreed to out­side the buyer’s offer (or mutual escrow instructions) and only between the seller and the brokers, the seller can actually close the transaction without payment of the fee on unilateral instructions which escrow is bound to follow. To collect, the brokers are required to pursue the seller after closing for breach of the separate fee agreement. [In re Munple, Ltd. (9th Cir.1989) 868 F2d 1129]

A third party beneficiary is a person for whose benefit two other individuals place provisions in an agreement — such as when a buyer and seller under a purchase agreement or escrow instruc­tions mutually provide for the payment of a bro­kerage fee by the seller or defaulting party.

A brokerage fee provision written into the pur­chase agreement gives both brokers a separate enforce­able contract right to collect their entire fee, ei­ther as part of the closing or from the breaching party on a failure to close. The assurance for payment is due to the location and wording of the fee pro­vision in the buyer’s purchase agreement offer. [Calif. Civil Code §1559]

Exclusive listing as a first magnitude safeguard

For brokers and their agents representing buyers, an exclusive right-to-buy listing is the initial and most effective step they can take to ensure a fee is paid for their diligence, talent and money spent to locate property for a buyer.[See first tuesday Form 103]

The exclusive right-to-buy listing is used by a broker and their agents when arranging to be employed by a prospective buyer to prepare and submit the broker’s of­fer to act as a buyer’s exclusive real estate agent. With a signed exclusive listing, the broker is formally employed to locate property sought by the buyer in exchange for the buyer’s assurance a fee will be paid the broker if the buyer acquires the type of property sought during the listing period.

Also, the exclusive right-to-buy listing provides greater incentive for brokers and their agents and on behalf of the buyer imposes a duty to work diligently and continu­ously to meet their buyers’ objectives of locating and purchasing suitable real estate.

The buyer as a client benefits under an exclusive right-to-buy listing due to the greater likelihood the broker will find the particular type of prop­erty sought. Brokers have continuous access to all available properties and the brokers involved. It is part of their services to investigate and qualify properties as suitable before they are pre­sented to the buyer and then advise the buyer on the pros and cons of each property presented. Seller’s agents have no such duties owed to the buyer.

In exchange for promised brokerage services, the buyer is bound to cooperate in meeting the objectives of the written listing agreement, which also establishes the broker’s right to payment of the agreed brokerage fee when earned.

A broker or their agent who seeks out and locates properties at the request of their buyer negotiates the purchase terms as the buyer’s agent. The activity is undertaken regardless of who pays the fee, which is typically paid by the seller from the proceeds of the gross sales price paid by the buyer — unless the buyer or the seller owe it on their breach.

Related topics:
breach of contract

Posted by Matthew Taylor | Mar 7, 2014 | Feature Articles, Fundamentals, Laws and Regulations, Real Estate, Your Practice | 0

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

The California Bureau of Real Estate (CalBRE) reports a surge in complaints from buyers suspicious their offers were not submitted to the seller for consideration. A recent CalBRE publication, dissected by first tuesday, highlights in great detail a licensee’s duty to promptly submit all offers to their principal. Period.

This article is Part I in a series of two. For more information on what to do if you suspect your buyer’s offers are not being presented to a seller, see Part II, “Present every offer and avoid CalBRE scrutiny.”

Omission becomes deceit

Consider a seller who lists their property for sale with a broker. The seller’s broker and their agent are employed to locate a qualified buyer who will make the most attractive offer for the seller to consider.

While marketing the property, the seller’s agent receives an offer to purchase the property from a buyer at a price substantially lower than the listing price sought by the seller.

Shortly after receiving the first offer, the seller’s agent receives another offer to purchase the property. This second offer is for a price greater than the listed price.

The seller’s agent has previously dealt with this second buyer and believes the buyer is less financially qualified than the buyer who submitted the first offer. The agent, sensing the second buyer will have difficulty securing purchase-assist financing called for as a contingency in the purchase offer, doesn’t submit the second offer to the seller.

Despite the inadequate price, the seller believes the first offer is the only available option and accepts this offer by entering into the purchase agreement. The seller closes escrow on the first offer.

Later, the seller discovers the existence of the second offer and its superior terms. The seller seeks to recoup their money losses from the broker in court for the difference between the amount received and the amount of the second offer.

The seller’s agent claims they did not believe the second offer was credible and discarded it in service to the seller, who had already received a bona fide offer to purchase.

Is the seller’s agent liable for the seller’s losses?

Yes! The seller’s agent breached their fiduciary duty to care for and protect the seller’s best interests.

Regardless of the seller’s agent’s intentions, their failure to present the second offer to the seller is tantamount to an outright denial the offer ever existed. This raises the seller’s agent’s actions to the level of deceit by omission.

Not only did the seller’s agent breach the fiduciary duty owed their seller, they also acted fraudulently. The agent’s fraudulent behavior entitles the seller to collect their losses from the agent, as well as punitive damages. Further, the seller’s agent is subject to disciplinary action from the California Bureau of Real Estate (CalBRE), including suspension or revocation of their license. [Simone v. McKee (1956) 142 CA2d 307]

Repeating the refrain: an offer is an offer

This is well-trod ground at first tuesday. We’ve restated again and again the seller’s agent has a duty to present every offer to purchase they receive to their seller, regardless of content or presentation, forever and always, amen. It’s the law. [California Civil Code §2709]

first tuesday frequently receives questions on this matter. Usually the inquiry is presented in conjunction with the myth that California Association of Realtor (CAR)-produced forms are “required” by CalBRE, errors & omissions (E&O) insurance carriers or other parties.

In response to numerous reader queries, we reached out to the CalBRE for clarification on this highly visible issue. In the very next issue of the Real Estate Bulletin, CalBRE recapitulated these obligations by giving the failure-to-present issue top billing in the Fall 2013 issue.

The lengthy and, at times, sternly-worded article notes a recent surge in complaints from buyers suspicious their offers were not submitted to the seller. The agency takes this premise as an opportunity to wag the proverbial finger.

Related reading:

CalBRE Fall 2001 Real Estate Bulletin, “Being an agent means never having to say you’re sorry”

CalBRE Fall 2013 RE Bulletin, “A Licensee’s Duty to Present All Offers”

CalBRE’s article reveals most failure-to-present complaints come from buyers submitting full- or over-asking price cash offers, which the buyer thinks are too good for any rational seller to ignore.

This makes sense, given that crazed cash-flush speculators were afoot throughout 2013. They jostled to outbid one another and accumulate a vast inventory of property, destined for release back into the resale market (speculator shadow inventory, if you will).

Related article:

The great gamble: real estate speculators decoded

It also usefully illustrates the asymmetry of knowledge between speculators and end user buyers. With a better understanding of the law and transaction process than ordinary homebuyers, savvy speculators thus know how to spot red flags—like an absent response to a seemingly lucrative offer.

The end user homebuyer — without the guidance of their agent in navigating the transaction process — is not so fortunate, which explains CalBRE’s focus on cash buyers.

Rationalizing the breach of duty

Although a seller’s agent’s failure to present may go unnoticed and thus unreported by an unskilled end user buyer, that doesn’t mean it happens less frequently.

Numerous (improper) reasons exist to explain a seller’s agent failure to transmit an offer to their seller. None of these excuses make the conduct appropriate. The Bulletin article suggests brokers “cherry pick” offers which yield the highest commission, which is a serious misdeed of placing the agent’s interests ahead of the client’s.

Other reasons for this bad seller’s agent behavior include:

• pre-screening offers and submitting only those the agent believes the seller is most likely to accept (in essence,  making unauthorized decisions on the client’s behalf);
• dismissal without presentation of offers submitted on an unfamiliar form (a conflict of interest arising from a broker’s bias toward or against a publisher);
• discarding an offer based on a belief the offer isn’t likely to gain a short sale lender’s approval; or
• rejection of offers presented on non-trade union forms in the mistaken belief their E&O insurance policy will not cover claims arising from a dispute.

How standard is “standard”?

This last rationale stems from a persistent, widespread misunderstanding of how E&O insurance works. E&O insurance protects licensees from the full cost of defending against a negligence claim made by a client or others with the payment of premiums. Providers manage the risk involved in this type of coverage by, among other things, encouraging the use of “industry standard” agreement and disclosure forms.

Many brokers, and thus their agents, misunderstand what is truly meant by the expression “industry standard.” Standard simply means a document created with boilerplate provisions conforming to local, state and federal laws and regulations, and general brokerage practice.

What E&O providers seek to avoid with standard forms is the use of homebrewed forms created independently by the broker. “Standard” means using published forms which conform to law. Standard does not mean only those forms published by trade unions such as CAR.

Related reading:

Brokerage reminder: E&O insurance and the preferred forms standard

Duty to present

What experienced flippers understand and most homebuyers do not: the agency relationship and a licensee’s fiduciary duty mandate the disclosure of any fact which potentially affects their principal’s interests in a transaction, known as a material fact.

An offer to purchase is material to the seller’s decision-making process regardless of its content or form of presentation – oral included. It’s a critical factor in the seller’s evaluation of the desirability of their property and negotiation in its price and terms of sale. [CC §2279(a)]

Failure to present an offer denies the seller the opportunity to weigh all offers their agent receives and to better understand buyer demand. Failure to present any offer, oral or written in any form, is essentially an affirmative representation to the seller the offer does not exist. [Miller & Starr §3:27]

Related article:
Failure to present all offers: a reportable offense

It’s possible to look at this duty as not just a benefit to the seller, but to the buyer as well. Effectively, it means a buyer has an implicit right to have their offer at the very least looked at by a seller when a broker is involved in the transaction. Otherwise, how can the seller consider it?

Presenting all offers further serves a critical public purpose: enhanced perception of fairness and transparency in the real estate marketplace, fortified by the conduct of the agent – the Gatekeeper to real estate ownership for both the buyer and the seller.

No duty to respond

It is important to remember that neither the seller nor their agent has any legal duty to respond to an offer. Failure to respond to an offer does not necessarily mean that offer was not presented. And if a seller instructs their agent (preferably evidenced in writing) not to present offers which fail to meet agreed-upon criteria, the seller’s agent is excused from handing those offers over. [Stevens v. Hutton (1945) 71 CA2d 676; CC §2079]

The Bulletin article suggests a considerable portion of failure-to-present complaints stem from the initial misconception that a response of some kind is required. It’s not hard to imagine that CalBRE initiates a number of investigations on this matter only to discover a breach of the seller’s agent’s duties did not occur.

A possible reason for that is CalBRE’s investigative protocol. If a complaint is filed and an investigation begun, the burden of proof of presentation falls on the seller’s agent. The investigators require the seller’s agent produce documentary evidence they fulfilled their fiduciary duty and presented every offer received to their seller.

That’s why the seller’s agent is best served leaving a paper trail — that signed rejection of an offer in the space provided on purchase agreement forms, whether or not returned to the buyer making the offer. Although not legally required, first tuesday encourages a seller’s agent’s use of a formal rejection or written acknowledgement of unsuitable offers. [See first tuesday form 150]

Are you concerned a seller’s agent is not presenting your buyer’s offers to the seller? You have options. See Part II of this series, “Present every offer and avoid CalBRE scrutiny.”

Related topics:
department of real estate (dre), purchase agreement

Posted by ft Editorial Staff | Sep 10, 2014 | Laws and Regulations, New Laws, Real Estate, Tax | 0

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

Revenue and Taxation Code §62.3
Added by A.B. 1700
Effective date: January 1, 2013

The transfer of a deceased cotenant’s real estate interest to another cotenant is not a change in ownership triggering property reassessment for property tax purpose if:

• the transfer is solely by and between two cotenants who own 100% of the property in joint tenancy or as tenants in common;
• after the transfer, the surviving cotenant holds 100% interest in the property, resulting in a termination of the joint tenancy or tenancy in common;
• the property was co-owned and continuously occupied by both cotenants in the one-year period immediately preceding the transfer;
• the property was the principal residence of both cotenants immediately preceding the deceased cotenant’s death; and
• the surviving cotenant signs an affidavit affirming they continuously resided at the property with the deceased cotenant for the one-year period immediately preceding the transfer.

This exclusion does not apply if the transfer is relevant to another exclusion, e.g., the spousal transfer or parent-to-child transfer. In other words, the surviving cotenant may only claim this exclusion if they are not able to claim another exclusion which exempts the property from reassessment.

Related topics:

Posted by ft Editorial Staff | Nov 4, 2014 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Civil Code §§1923.2 and 1923.5
Amended by A.B. 1700
Effective date: January 1, 2015

A lender may not accept an application for a reverse mortgage or assess any fees until seven days after the borrower completes reverse mortgage counseling. The completion of the counseling is to be evidenced by a counseling certification.

Before a borrower meets with a counselor, the lender is also required to provide the borrower with two notices:

• a notice to reverse mortgage applicants, in 16-point font; and
• a reverse mortgage worksheet guide, in 14-point font.

The notice to reverse mortgage loan applicants has been amended to read (changes italicized):

“IMPORTANT NOTICE TO REVERSE MORTGAGE LOAN APPLICANT
A REVERSE MORTAGE IS A C OMPLEX FINANCIAL TRANSACTION. IF YOU DECIDE TO OBTAIN A REVERSE MORTGAGE LOAN, YOU WILL SIGN BINDING LEGAL DOCUMENTS THAT WILL HAVE IMPORTANT LEGAL AND FINANCIAL IMPLICATIONS FOR YOU AND YOUR ESTATE. IT IS THEREFORE IMPORTANT TO UNDERSTAND THE TERMS OF THE REVERSE MORTGAGE AND ITS EFFECT ON YOUR FUTURE NEEDS. BEFORE ENTERING INTO THIS TRANSACTION, YOU ARE REQUIRED TO CONSULT WITH AN INDEPENDENT REVERSE MORTGAGE LOAN COUNSELOR TO DISCUSS WHETHER OR NOT A REVERSE MORTGAGE IS RIGHT FOR YOU. A LIST OF APPROVED COUSELORS WILL BE PROVIDED TO YOU BY THE LENDER.

SENIOR CITIZEN ADVOCACY GROUPS ADVISE AGAINST USING THE PROCEEDS OF A REVERSE MORTGAGE TO PURCHASE AN ANNUITY OR RELATED FINANCIAL PRODUCTS. IF YOU ARE CONSIDERING USING YOUR PROEEDS FOR THIS PURPOSE, YOU SHOULD DISCUSS THE FINANCIAL IMPLICATIONS OF DOING SO WITH YOUR COUNSELOR AND FAMILY MEMBERS.”

The reverse mortgage worksheet guide is to read as follows, in 14-point font:

“Reverse Mortgage Worksheet Guide—Is a Reverse Mortgage Right for Me?

To decide if a recommended purchase of a reverse mortgage is right for you, consider all of your goals, needs, and available options. This self-evaluation worksheet has five essential questions for you to consider when deciding if a reverse mortgage is right for you.

Directions: The State of California advises you to carefully read and complete this worksheet, and bring it with you to your counseling session. You may make notes on a separate piece of paper with questions you may have about whether a reverse mortgage is right for you. During the counseling session, you can speak openly and confidentially with a professional reverse mortgage counselor, independent of the lender, who can help you understand what it means for you to become involved with this particular loan.

1. What happens to others in your home after you die or move out?

Rule: When the borrower dies, moves, or is absent from the home for 12 consecutive months, the loan may become due.

Considerations: Having a reverse mortgage affects the future of all those living with you. If the loan cannot be paid off, then the home will have to be sold in order to satisfy the lender. To determine if this is an issue for you, ask yourself:

(A) Who is currently living in the home with you?

(B) What will they do when you die or permanently move from the home?

(C) Have you discussed this with all those living with you or any family members?

(D) Who will pay off the loan, and have you discussed this with them?

(E) If your heirs do not have enough money to pay off the loan, the home will pass into foreclosure.

Do you need to discuss this with your counselor? Yes or No

2. Do you know that you can default on a reverse mortgage?

Rule: There are three continuous financial obligations. If you fail to keep up with your insurance, property taxes, and home maintenance, you will go into default. Uncured defaults lead to foreclosures.

Considerations: Will you have adequate resources and income to support your financial needs and obligations once you have removed all of your available equity with a reverse mortgage? To determine if this is an issue for you, ask yourself:

(A) Are you contemplating a lump-sum withdrawal?

(B) What other resources will you have once you have reached your equity withdrawal limit?

(C) Will you have funds to pay for unexpected medical expenses?

(D) Will you have the ability to finance alternative living accommodations, such as independent living, assisted living, or a long-term care nursing home?

(E) Will you have the ability to finance routine or catastrophic home repairs, especially if maintenance is a factor that may determine when the mortgage becomes payable?

Do you need to discuss this with your counselor? Yes or No

3. Have you fully explored other options?

Rule: Less costly options may exist.

Consideration: Reverse mortgages are compounding-interest loans, and the debt to the lender increases as time goes on. You may want to consider using less expensive alternatives or other assets you may have before you commit to a reverse mortgage. To determine if this is an issue for you, consider:

(A) Alternative financial options for seniors may include, but not be limited to, less costly home equity lines of credit, property tax deferral programs, or governmental aid programs.

(B) Other types of lending arrangements may be available and less costly. You may be able to use your home equity to secure loans from family members, friends, or would-be heirs.

Do you need to discuss this with your counselor? Yes or No

4. Are you intending to use the reverse mortgage to purchase a financial product?

Rule: Reverse mortgages are interest-accruing loans.

Considerations: Due to the high cost and increasing debt incurred by reverse mortgage borrowers, using home equity to finance investments is not suitable in most instances. To determine if this is an issue for you, consider:

(A) The cost of the reverse mortgage loan may exceed any financial gain from any product purchased.

(B) Will the financial product you are considering freeze or otherwise tie up your money?

(C) There may be high surrender fees, service charges, or undisclosed costs on the financial products purchased with the proceeds of a reverse mortgage.

(D) Has the sales agent offering the financial product discussed suitability with you?

Do you need to discuss this with your counselor? Yes or No

5. Do you know that a reverse mortgage may impact your eligibility for government assistance programs?

Rule: Income received from investments will count against individuals seeking government assistance.

Considerations: Converting your home equity into investments may create nonexempt asset statuses. To determine if this is an issue for you, consider:

(A) There are state and federal taxes on the income investments financed through home equity.

(B) If you go into a nursing home for an extended period of time, the reverse mortgage loan will become due, the home may be sold, and any proceeds from the sale of the home may make you ineligible for government benefits.

(C) If the homeowner is a Medi-Cal beneficiary, a reverse mortgage may make it difficult to transfer ownership of the home, thus resulting in Medi-Cal recovery.

Do you need to discuss this with your counselor? Yes or No”

Related topics:
reverse mortgage

Posted by Giang Hoang-Burdette | Nov 11, 2014 | New Laws, Real Estate, Tax | 1

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

Calif. Revenue and Taxation Code §5097
Amended by S.B. 1113
Effective date: January 1, 2015

Veterans deemed 100% disabled by the U.S. Department of Veterans Affairs (VA) are exempt from paying property taxes on up to $100,000 ($150,000 for veterans with household incomes of $40,000 or less) of the value of their principal residence. While the VA determines a veteran’s disabled status, veterans are to make timely property tax payments. Disabled status is granted retroactively.

Upon receiving confirmation of disabled status, the disabled veteran or their surviving unmarried spouse may request a refund of property taxes paid after the date the veteran was deemed disabled by the VA.

For claims made on or after January 1, 2015, the time period for filing a refund request is extended from four to eight years from the date the property taxes were paid.

Related topics:
property tax

Posted by Sarah Kolvas | Sep 30, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A homeowner obtains a mortgage secured by a trust deed on their home. The trust deed specifies conditions required by the National Housing Act (NHA) that the lender is to fulfill before foreclosing on a homeowner in default, including a meeting with the homeowner to discuss foreclosure alternatives and loan modifications. The homeowner later defaults. The lender fails to meet with the homeowner to satisfy the conditions contained in the trust deed and forecloses, purchasing the property at the trustee’s sale. The homeowner refuses to vacate and the lender files an unlawful detainer (UD) action.

Claim: The homeowner seeks to cancel the trustee’s sale and quiet title to the property, claiming the trustee’s sale is void since the lender failed to satisfy the conditions precedent for foreclosure when it failed to meet with the homeowner to discuss foreclosure alternatives, as provided for in the trust deed.

Counter claim: The lender claims the trustee’s sale is not voidable since the homeowner failed to tender payment for their default and, thus, have no standing to set aside the trustee’s sale.

Holding: A California court of appeals held the homeowner is entitled to cancellation of the trustee’s sale and to quiet title since the lender failed to fulfill the conditions precedent for foreclosure as it did not comply with the NHA requirements set forth in the trust deed to meet with the homeowner to discuss foreclosure alternatives and, thus, improperly foreclosed. [Fonteno v. Wells Fargo Bank (August 18, 2014)_CA4th_]

Related topics:
foreclosure

Posted by Elizabeth T. Pardo | Apr 22, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 1

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

Facts: A debtor filed a Chapter 13 bankruptcy petition and transferred property they owned into a revocable living trust to conceal the property from the bankruptcy court. The bankruptcy was dismissed by the court. Within two months of the first Chapter 13 bankruptcy petition, the debtor filed a second Chapter 13 bankruptcy petition, failing to record the property in their Statement of Financial Affairs (SOFA). The court demanded the debtor record a quitclaim deed transferring the property back from the trust to themselves. One year after transferring the property back to the debtor, the court allowed the debtor to file for Chapter 7 bankruptcy with full knowledge the debtor’s previous attempts at concealment. A judgment creditor discovered the property had been transferred from the debtor’s trust to the debtor.

Claim: The creditor sought to place a lien on the property, claiming the property was not protected under the one-year discharge limitation since the three consecutive bankruptcy cases were considered a single bankruptcy during which the transfer occurred.

Counter claim: The debtor claimed the creditor was not entitled to place a lien on the property since the fraudulent transfers occurred more than one year before their Chapter 7 filing and thus the property was protected under the one-year discharge limitation as each bankruptcy filing was separate.

Holding: A bankruptcy appeals court held the property is protected from the creditor’s lien since the property was transferred back to the debtor from the living trust greater than one year before filing for the Chapter 7 bankruptcy and thus the debtor is entitled to discharge protections.[In re Neff (February 20, 2014) _BR_]

Related topics:
chapter 13 bankruptcy, chapter 7 bankruptcy

Posted by Sarah Kolvas | Jul 15, 2014 | Buyers and Sellers, Real Estate, Recent Case Decisions, Your Practice | 2

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

Facts: A homebuyer and their agent submit an offer to purchase a single family residence (SFR) to the seller’s agent. After the purchase agreement offer is accepted, the seller’s agent provides the homebuyer with a written disclosure of the property’s condition, noting observable damage to a section of flooring. The seller’s agent gives the homebuyer additional reports provided by the seller detailing damage to the subflooring from past drainage problems. The reports note the drainage system was repaired but the subflooring was not. The homebuyer purchases the property, and later discovers the subflooring has extensive damage which was not cured when the drainage system was repaired.

Claim: The homebuyer seeks to recover their money losses for curing the subflooring from the seller’s agent, claiming the agent breached their general duty to the homebuyer since the seller’s agent failed to disclose the damage to the subflooring was not repaired.

Counter claim: The seller’s agent claims they did not breach their general duty owed to the buyer since the seller’s agent provided the buyer with a disclosure of their visual inspection noting the damage to the flooring with supplementary reports indicating repairs were made specifically to the drainage system and not the subflooring.

Holding: A California court of appeals held the homebuyer was not entitled to recover the costs for repairs from the seller’s agent since the seller’s agent fulfilled their general duty owed to the buyer by completing the required visual inspection and providing reports detailing the damage observed to the subflooring and repairs were made to the drainage system. [Peake v. Underwood (June 25, 2014)_CA4th_]

Editor’s note — While the seller’s agent owes a special fiduciary duty to the seller who is their client, the seller’s agent only owes a limited, non-client general duty to the buyer to voluntarily provide information on the listed property. Here, the “limited” refers to the minimal quantity of fundamental information about the property which needs to be presented to the buyer and their agent by the seller’s agent. The information disclosed by the seller’s agent only needs to be sufficient enough in its content to place the buyer on notice of facts which may have an adverse effect on the property’s value or the buyer’s intended use of the property.

To gather adverse facts about the property, the seller’s agent is to:

• conduct a visual inspection to observe conditions which may adversely affect the market value of the property and note observations on a Transfer Disclosure Statement (TDS) delivered to prospective buyers [See first tuesday Form 304];
• assure seller compliance with the seller’s underlying duty to deliver statements to the buyer as soon as practicable (ASAP);
• confirm, without further investigation, that all information in the disclosure documents from the seller is consistent with the seller’s agent’s knowledge of the information — if  not, the seller’s agent is to correct the information or disclose their uncertainty to the seller and buyer in the documents;
• recommend to their seller they obtain a third-party property inspection to reduce the exposure to claims by a buyer who discovers deficiencies; and
• respond truthfully and honestly to inquiries by the buyer or buyer’s agent into conditions relating to any aspect of the property with a full and fair answer of related facts known to the seller’s  agent.

Here, the seller’s agent fulfilled their general duty to disclose adverse property conditions to the buyer by providing a visual inspection and supplementary reports which specified the damage done and the degree of repairs performed. Thus, the buyer was put on sufficient notice by the seller’s agent that defects exist in the subflooring.

The weakness in the seller’s agent’s case was that they provided property disclosures to the buyer after the buyer’s offer had been submitted and accepted, a breach of law itself. Without previous disclosure, the process of placing the property under contract was inherently corrupted due to the asymmetric knowledge of property facts between the buyer and seller when the price was set.

Remember, agents are best served by providing disclosures to the buyer and buyer’s agent as soon as practicable — before they submit an offer and the seller accepts. [Holmes v. Summer (2010) 188 CA4th 1510)]

Related articles:

Holmes v Summer: dilatory disclosures and the damage done

Post-offer disclosures: a bad deal

Related topics:
disclosures

Posted by Sarah Kolvas | Dec 8, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A property owner holds title to a vacant lot in a revocable trust, naming their child as the successor trustee and beneficiary. Later, the owner and their caregiver orally agree to construct a home on the vacant lot for the caregiver. The property owner finances the construction and the caregiver contributes $100,000 in improvements, resulting in a total fair market value of $480,000. The caregiver later prepares a quitclaim deed for the newly-constructed property, stating the consideration for the property as $1, and the owner signs the document to transfer the property to the caregiver. The property owner later passes away.

Claim: The beneficiary of the trust seeks to void the quitclaim deed, claiming the transfer is donative since the caregiver did not provide adequate consideration for the property and, thus, it is invalid as the recipient of a donative transfer may not be the drafter of the quitclaim deed or the property owner’s caregiver.

Counter claim: The caregiver claims the quitclaim deed is not a donative transfer and, thus, valid since the caregiver provided adequate consideration for the property by contributing the cost of improvements.

Holding: A California court of appeals held the quitclaim deed was donative and invalid since the $100,000 in improvements was inadequate consideration for the $480,000 home and, as merely added value to the property being transferred to the caregiver, did not benefit the property owner in any way, thus barring the caregiver from being the recipient of the donative transfer as the drafter of the quitclaim deed and the property owner’s caregiver. [Jenkins v. Teegarden (October 23, 2014)_CA4th_]

Related topics:
quitclaim deed

Posted by Sarah Kolvas | Oct 14, 2014 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Code of Civil Procedure §703.020
Amended by A.B. 1945
Effective date: January 1, 2015

In bankruptcy proceedings, registered domestic partners are able to claim community property exemptions (including the homestead exemption) from the enforcement of a money judgment against community property, whether or not they file for bankruptcy jointly.

Related topics:

Posted by ft Editorial Staff | Jan 3, 2014 | Buyers and Sellers, FARM Letters, Real Estate | 3

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

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The sale of your home is one of the biggest financial transactions of your life, and you want it to go smoothly. Why not partner up with a friendly neighborhood real estate agent to get the job done? Here are some important reasons to have a professional working for you:

1. The price is right. I will help you set the optimal price for your property. This is accomplished by preparing a comparative market analysis to determine the value of your home.
2. I’ll handle the paperwork. Real estate forms come with a lot of jargon. I can explain what each part of the form does for you. It’s all about transparency!
3. Advertising that works. I know how to promote your listing. With quality marketing, I will reach a wider audience and find you the best buyer.
4. Agent expertise. Working in real estate gives me exclusive knowledge and resources to sell homes successfully. Let me share this valuable information with you!
5. Save yourself time. I’ll do the work so you don’t have to. I’ll communicate with buyers on your behalf, handle all sale interactions and bargain to get you the best price. It’s my job.
6. Professional advice. I’m privy to the legal aspects of real estate. I’ll help reduce your liability by giving you direction.
7. I’ll make your home look its best. Proper staging is vital to attracting buyers. I’ll determine what homebuyers want and ensure your home makes the best impression.
8. Access to a multiple listing service. Our extensive network gives your listing the exposure it needs and helps find you motivated buyers. It’s a trusted system you can count on to make your home sale a success.

If you’re serious about selling your home, call me today to set up a listing appointment and receive a free comparative market analysis!

Related topics:
farm letter, listing agent, sales

Posted by ft Editorial Staff | Nov 3, 2014 | 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

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Prepare for the third degree!

Documentation you will need to provide includes:

• Proof of income: Your two most recent payroll check stubs or electronic deposit receipts showing year-to-date earnings. Also provide copies of the last three months’ bank statements.
• Tax returns: Copies of your W-2s (or 1099s) and tax returns for the past two years.
• Payment history: Download a 12-month mortgage payment history, or provide checks showing 12 months’ of mortgage payments.
• Bankruptcy history: Copies of bankruptcy discharge papers, including a list of creditors and a written explanation for petitioning for bankruptcy protection.
• Relationship history: Copies of any divorce decrees.

Common triggers that increase lender scrutiny are:

• Large bank deposits: Lenders must confirm the funds in your bank account come from bona fide sources, such as wages or an inheritance. If the deposit is substantially larger than a regular paycheck, be prepared to explain its source.
• The location and type of home being purchased: Lenders want to ensure you will be occupying — not leasing or flipping — the home you’re financing. Your commute to work and the size of your family should be reasonably accommodated by the location and size of the property. Work from home? Provide verification from your employer.
• Undisclosed debts: Avoid making large purchases in the three months prior to making your loan application, and also while your loan application is in process. A new payment may change your credit and affect mortgage closing.
• Income inconsistency: Any changes to income, such as transition from 1099 to W-2 employment, must be documented and verified. Earning more than the average person in your occupation will also raise a red flag. Lenders regularly check with the IRS to verify income.

Related topics:
mortgage

Posted by ft Editorial Staff | Dec 22, 2014 | 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. 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

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Buy a new home and rent out your current home

Want to move to a bigger property, but worried about selling your home? Consider keeping your current home as a rental property.

This long-term investment can give you the ability to cover your full mortgage payment with the rents you receive from tenants, while potentially adding an additional income stream for now or the future.

The duties of a landlord

Renting out your home means added responsibilities. You’ll have to maintain not one but two homes. You also have to consider the legal rights of the tenant, in addition to your rights and duties.

To avoid the stress, many rental property owners hire professional property managers to do the hard work for them. Property managers can help with everything from screening tenants, to enforcing lease terms, to contracting for repairs.

Invest for the road ahead

Rental property can be an excellent long-term investment, yet every situation is unique.

If you would like more information or would like to talk to an experienced real estate professional about all your buying and selling possibilities, give me a call! I’ll help you get the most out of your next step, whether it’s buying, selling or getting your current property rent-ready.

Related topics:

Posted by ft Editorial Staff | Nov 24, 2014 | 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. 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

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Are you thinking about selling your home? Pricing your home right is the key to getting top dollar on your sale. Overpricing your home is tempting, but can lead to a shopworn listing and reduced sales proceeds. Here’s why I recommend you competitvely price your home:

• It makes your home visible to the right buyers. Buyers and their agents search for homes by price range. By pricing your home competitively, you make your home visible to the right buyers.
• You’ll catch the peak period of buyer activity. Homes attract the most buyers when they first hit the market. After a couple of weeks, showing activity is reduced to the new home buyers just entering the market. A common misconception by home sellers is that they can start high, and come down later. However, this strategy causes them to miss the best chance for the highest sales price.
• You’ll sidestep the staleness. A home that doesn’t sell right away has something wrong with it. The offers made on homes after extensive days on the market are typically much lower than offers received in the first few days. Buyers assume that sellers become more desperate to sell the longer a home sits on the market, causing buyers to become more aggressive in their negotiating.
• It eliminates the never-ending hassles of selling. Longer marketing time means more showing appointments and additional efforts to get your home sold. You will also have to maintain it in “showing condition” for a longer period of time.
• Don’t help the competition. Comparable homes for sale at lower prices will seem more attractive to potential buyers.
• A smooth loan process. Even if a buyer agrees to pay an above market price, the appraisal required by the buyer’s lender may come in short, leading to a cancelled sale.

For more information on how to beat out competing sellers and maximize your profit, call me! I’ll market your property to get you top dollar!

Related topics:
sales

Posted by ft Editorial Staff | May 19, 2014 | Buyers and Sellers, FARM Letters, Real Estate | 0

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

Buying a home is one of the biggest financial transactions of your life, but it can be daunting if you’re unfamiliar with the real estate market. Say you drive by the house of your dreams, and you want to find out more about the property. Don’t just call the number on the sign — go in with an expert on your side!

As a buyer’s agent, I’ll provide these benefits you won’t get from working directly with the agent listing the home:

1. Diligent representation and negotiations. Unlike an agent working on behalf of the seller, as your buyer’s agent, my loyalty and legal duty is to you. I’ll focus on finding what you want and negotiating aggressively on your behalf — no need to take a back seat to the seller.
2. Better price. As your agent, my goal is to get you your dream home at the lowest price. A seller’s agent seeks the best deal for their seller, and that doesn’t always translate into the best deal for you. Don’t throw your money away! Let me find you a great home in your price range and negotiate to get you the best deal.
3. The right home. With your wish list in mind, I’ll provide transparency and advise you on how well a property really matches your needs. A seller’s agent looking out for their client isn’t going to give you the full picture about a property’s fit for you. Set your own standards and I’ll help you meet them.
4. Simplicity of one agent. Having one reliable agent working on your behalf makes your home search easier and more successful. Not interested in dealing with multiple seller’s agents who aren’t tuned in to what you want? As your agent, I’ll guide you through your entire home search with your best interest in mind to ensure your needs are always met.

Are you ready to find your dream home? Let me help you! Call today for a free consultation.

Related topics:
buyers agent, real estate marketing, sales

Posted by ft Editorial Staff | Apr 30, 2014 | 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. 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

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Choosing the right moment to sell is a personal decision for homeowners. Consider these questions to time your sale for maximum results:

Who rules in the current market?
In a buyer’s market, low buyer demand and an abundance of properties is likely to decrease the sales price of your home. In a seller’s market, higher buyer demand and a shortage of listed homes drives prices up. Each market has its own challenges and opportunities – but waiting for a seller’s market makes it easier to find a buyer at the highest price.

How long have you occupied your house?
If you’ve occupied the home you own for at least two of the past five years when you sell, sales profits of up to $250,000 per owner are exempt from taxes. Time it right and pocket those tax savings!

What time of the year is it?
Homebuyers are more plentiful during the spring and early summer months. The market slows down around the holidays. However, needy buyers are still present during the winter, and there’s less competition from other sellers. Your willingness to list your property during the off season often produces a great sale – with proper marketing.

What’s the condition of your home?
If your property is in need of some TLC, first complete those repairs before listing your home for sale. Homebuyers want a home that is clean and move-in ready. Holding out to sell until deferred maintenance is cured will pay off in the end.

If you don’t want to make repairs before selling, that works too – but a special buyer is needed and the price will adjust accordingly.

Is the time right for you to sell? Please call me with any questions, or to set up a listing appointment!

Related topics:
sales

Posted by ft Editorial Staff | Nov 3, 2014 | 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. 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

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Selling your home is a game of numbers, and winning means placing your home on the market at a competitive price. Proper pricing ensures your home sells quickly and provides you with maximum return on your property.

Need some pointers for pricing your home competitively? Here are some tips:

• Assess your buyers. Do you know what buyers in your market want? Understanding what your buyers are looking for enables you to adjust your price to reflect the buyer’s needs. Mold your listing to your buyer’s pricing expectations to speed up your sale.
• Scope out your competition. The fair market value of your home depends on comparable properties in your neighborhood.
• Find out what sellers nearby are offering. Remember: if a buyer is able to purchase your home at a slightly lower price than comparable homes in the neighborhood, your home is likely to sell fast.
• Consider features and upgrades. Your home makes a first impression, and it matters! Stage your home. Depersonalize it.
• Make sure it has curb appeal. Upgraded kitchens make a difference, but so do simple features like light fixtures and doorknobs. Buyers pay attention to these details and are likely to pay more for them, so use this to your advantage—adjust your price accordingly.
• Consult a pro. Real estate professionals know how to navigate home pricing. An agent is able to assess your home’s value by finding comparable properties and interpreting the market. Let an agent do all the dirty work so you don’t have to.

Are you ready to sell your home? Let me help you find the right price so your home sells quickly! Call me today to schedule a consultation.

Related topics:
sales

Posted by ft Editorial Staff | Aug 12, 2014 | Buyers and Sellers, FARM Letters | 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

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I noticed your listing expired – are you still interested in selling your home? It’s a great seller’s market out there! My marketing plan includes:

• Proper exposure. Successful marketing employs multiple medias. This includes posting numerous quality photos of your home, proper sign placement, maximum use of online tools and the multiple listing service.
• Checking your motivation. As a seller, sometimes it is necessary to reassess your objectives. I’ll ensure you have clearly defined goals and expectations for your sale.
• Competitively pricing your home. I will price your home correctly and competitively to reflect its fair market value.
• Being accessible to homebuyers. A successful seller makes their home accessible for viewing at the buyer’s convenience. This requires the use of a professional lock box and flexible viewing hours.
• Smart staging to make your home stand out. First impressions are important. I’ll ensure proper staging to attract buyers and help them appreciate your home.
• Evaluating the condition of your property. Homebuyers want a clean and hassle-free home. Providing adequate maintenance will help them feel more at ease and ready to make an offer.
• A proactive listing agent. Successful agents take initiative and exhaust all available resources. I will market diligently, enlist the help of my professional network and work with you to find solutions to any concerns prospective buyers have about your property.

Stay motivated and choose an agent with a proven track record. Call me today, and let me put this plan to work to sell your home!

Related topics:
sales

Posted by ft Editorial Staff | Sep 8, 2014 | 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. 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

Related topics:
featured, sales

Posted by ft Editorial Staff | Sep 8, 2014 | 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. 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

Related topics:
sales

Posted by ft Editorial Staff | Sep 8, 2014 | 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. 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

Related topics:
sales

Posted by ft Editorial Staff | Sep 8, 2014 | 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. 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

Related topics:
sales

Posted by ft Editorial Staff | Sep 8, 2014 | 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. 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

Related topics:
sales

Posted by ft Editorial Staff | Nov 13, 2014 | Buyers and Sellers, FARM Letters, Real Estate | 1

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

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Are your friends thinking about buying a house? Give them these tips for getting ready to buy.

• Save for a down payment. The minimum down payment for an FHA loan is 3.5% of the property’s purchase price. This might be a pretty good chunk of money for many homebuyers, but don’t worry! If you’re not quite there, you can work on the rest of these steps while you save.
• Review your credit history. The better your credit history (and the bigger your down payment) the more desirable your loan terms and interest rate will be.
• Improve your credit. Pay your bills and pay them on time! If you tend to be forgetful or too busy when the first of the month rolls around, set up automatic monthly payments.
• Do not purchase any big-ticket items on credit. This includes vehicles, furniture, or even a vacation. These personal loans increase your debt-to-income ratio which in turn will decrease your borrowing power.
• Shop around for a home loan now, before you begin to shop for a home. Many homebuyers neglect this primary step toward purchasing a home.
• Shop around for the best loan offer. Comparing loan offers will expose big differences in loan terms and costs.
• Get a written preapproval. A preapproval letter sets you above other buyers in a competitive market. It tells sellers you mean business, and you have the money to back up your offer.
• Find a real estate agent you are comfortable with. Buying a home is a huge deal. Selection is about when, where and what price, and includes a big financial commitment. You need an expert at your side to guide you through the process and help you make intelligent decisions.

For more information about buying a home in today’s market, tell your friends to call me! Together we’ll find the home that’s the right fit.

Related topics:
mortgage, sales

Posted by Matthew Taylor | Dec 17, 2014 | Laws and Regulations, Licensing and Education, New Laws, Real Estate | 8

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

Updated Dec. 18, 2014

Calif. Business & Professions Code §115.4

Added by S.B. 1226

Effective date: July 1, 2016

The California Bureau of Real Estate (CalBRE) is required to expedite processing of real estate license applications for applicants who provide proof of honorable discharge from active-duty service in the U.S. Armed Forces.

Editor’s note — This bill does not specify measures to implement the expedited processing mandate. Other recent legislation (A.B. 1904, 2012) requires California licensing boards (including CalBRE) to expedite license application processing for active-duty military spouses who hold equivalent out-of-state licenses.

CalBRE plans to update its licensing forms to include questions about military service, and will begin expediting military applications on July 1, 2016. According to a CalBRE spokesperson, the agency does not currently have an estimate for the anticipated reduction in processing time for military applicants.

Read the bill text

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

Posted by Matthew Taylor | Jun 3, 2014 | Commercial, Investment, Laws and Regulations, Real Estate | 2

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

Capping heights – and the market

To stay competitive, cities need to attract and retain top-quality companies and the workers to fill them. Strong cites make strong regions; the spillover effects of increasingly competitive core cities bring educational, cultural and economic opportunities to surrounding areas.

Loosening zoning restrictions achieves robust cities and regions in several ways. Talented, educated workers are drawn to dense, vibrant urban environments with top-notch amenities and a diverse range of housing options. At the same time, firms benefit from both the infrastructural and intellectual capital provided by urban economies – high-speed fiber optic cables and a competitive, ever-present workforce alike.

But, in their perennial near-sightedness, a few noisy citizens are constantly shooting their own economic futures in the proverbial foot.

“Not in my backyard” (NIMBY) concerns like congestion and obstructed views trump opportunities to enhance economic competitiveness with surrounding communities. Local governments fall victim to the same myopia, pandering to NIMBY voters by enacting policies that increase stagnation, stifle growth and reject innovation. Status-quo thinking controls.

Strict, antiquated zoning hurts the real estate market, too. Construction shortages bring on runaway pricing in the most in-demand areas and limit turnover as workers are unable to easily relocate for scarce, high-paying jobs. Steeply inflated rents in underbuilt urban centers eat away at what otherwise becomes savings for future down payments. Wealth cannot be widespread when rents exceed 33% of gross earnings.

A tale of two cities

Major metros around the world understand what California doesn’t seem to get: grow or die.

Former New York City Mayor Bloomberg’s (now-dormant) Midtown East Rezoning Plan was devised to pave the way for a crop of large new office buildings aimed at reviving one of Manhattan’s aging business districts, where the average office building is 73 years old.

Proponents warned that failure to act on the plan would create a hemorrhage of tenants fleeing its decaying building stock for more modern digs. Millions of square feet of cutting-edge office space are emerging elsewhere in the city and, more importantly, in competitor cities abroad. Century-old buildings just don’t cut it for today’s most desirable tenants.

Bloomberg’s plan was mothballed because the city council felt it failed to sufficiently address the additional burden placed on transport and infrastructure. However, the new De Blasio mayoral administration intends to address these issues in a new plan, giving the appropriate attention to the services necessary to support more workers and residents. Infrastructure is government investment; buildings are private investment, but infrastructure has to come first in order for the private sector to prevail.

That reasoned objection to a flawed program and subsequent effort to address those flaws stands in stark contrast to how things are done in California.

To take the example of another large, global city struggling to stay competitive, the City of Los Angeles developed an update to the Hollywood Community Plan, which has guided zoning and growth in that neighborhood for 30 years.

Hollywood has seen a remarkable transformation from a grimy, crime-ridden corner to a bustling shopping, entertainment and employment center. A subway came to the neighborhood in the 1990s, and the urban renaissance of the last decade has brought new housing, offices, hotels and shopping.

The neighborhood’s future is bright, but its growth has been haphazard. The Community Plan update relaxed zoning restrictions around Hollywood’s several subway stations and on major boulevards to encourage denser growth close to transit, all while tightening controls elsewhere to preserve existing residential character.

It was a reasonable, measured approach, which carefully considered both the future needs of the region and the wishes of residents. But a small but litigious group of NIMBY neighbors and lawyers fought the plan all the way through its adoption, and ultimately to court.

Capitalizing on California’s onerous and oft-abused environmental review laws, the group convinced a judge to repeal the plan in its entirety based on technical aspects of the data used to forecast population growth.

It wasn’t just back to the drawing board for the Community Plan. The zoning changes made in the updated plan were already law, and the city was already issuing building permits for projects based on the updated zoning. The court’s decision enjoins any further activity on those projects. The issuance of new permits is on hold until the plan is redrafted and reapproved — a process which can take years.

Expanding choice and gaining an edge

The Hollywood Community Plan Update saga is just one high-profile example of an NIMBY epidemic in California. Fear and misunderstanding prevent residents from following the Midtown East model – which is taking a rational and collaborative approach to improving plans to guide growth. Instead, it’s a knee-jerk anti-growth crusade, which is highjacked by extortionist CEQA lawyers.

Encouraging higher urban densities is not a secret plot to force you and your family into a cramped sky hovel. It’s not an attempt to limit choice or dictate lifestyles. And it’s not even necessary – or possible, in most cities – to aspire to New York’s astronomically intense economic activity and built scale.

The reality is quite the opposite: looser zoning (government) allows builders (private sector) to respond to demand for a greater variety of housing types. In many California cities, it’s unlawful to build anything other than suburban single-family tracts and two-story garden apartment complexes.

Low-density suburban living is here to stay, and will remain abundantly available for anyone who chooses it. Leaner, smarter zoning programs which accommodate density where the market wants it increase choice and enhance economic competitiveness.

Looser zoning offers a little something for everyone:

• luxury high-rise lofts for established urban professionals;
• stylish and affordable flats for the mobile, educated Millennial;
• small, accessible starter homes for young families;
• backyard second units in single-family neighborhoods for aging Boomer parents and more.

Growth is going to happen whether you want it to or not. Cities and their citizens have the choices cut out for them: proactively work to accommodate growth beneficial of everyone, or stick their heads in the California sand and hope that if they shut  the problem out of discussion it will somehow go away.

Of course, cities can continue to try to stop growth by further entrenching restrictive zoning policies. But the price of that choice is to be left behind.

Related topics:
construction, economic growth, not in my backyard (nimby), zoning

Posted by ft Editorial Staff | Aug 11, 2014 | Feature Articles, Forms, Mortgages, New Laws, Real Estate | 0

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

Summary forms required with notice of default (NOD) and notice of trustee’s sale (NOTS) for one-to-four unit residential properties

Civil Code §§2923.3 and 2924
Amended by A.B. 1599
Effective date: April 1, 2013

These  notices are to be prepared in connection with one-to-four unit residential properties.

The following statement is required at the beginning of the notice of default (NOD) and the notice of trustee’s sale (NOTS):

NOTE: THERE IS A SUMMARY OF THE INFORMATION IN THIS DOCUMENT ATTACHED
注：本文件包含一个信息摘要
참고사항: 본 첨부 문서에 정보 요약서가 있습니다
NOTA: SE ADJUNTA UN RESUMEN DE LA INFORMACIÓN DE ESTE DOCUMENTO
TALA: MAYROONG BUOD NG IMPORMASYON SA DOKUMENTONG ITO NA NAKALAKIP
LƯU Ý: KÈM THEO ĐÂY LÀ BẢN TRÌNH BÀY TÓM LƯỢC VỀ THÔNG TIN TRONG TÀI LIỆU NÀY

[See first tuesday Forms 471 and 474]

A summary statement of the NOD and is to be provided to the defaulting owner with the NOD. The summary statement of the NOD is not required to be recorded.

The summary statement of the NOD is to read:

SUMMARY OF KEY INFORMATION

The attached notice of default was sent to [name of the trustor], in relation to [description of the property that secures the mortgage or deed of trust in default]. This property may be sold to satisfy your obligation and any other obligation secured by the deed of trust or mortgage that is in default. [Trustor] has, as described in the notice of default, breached the mortgage or deed of trust on the property described above.

IMPORTANT NOTICE: IF YOUR PROPERTY IS IN FORECLOSURE BECAUSE YOU ARE BEHIND IN YOUR PAYMENTS, IT MAY BE SOLD WITHOUT ANY COURT ACTION, and you may have the legal right to bring your account in good standing by paying all of your past due payments plus permitted costs and expenses within the time permitted by law for reinstatement of your account, which is normally five business days prior to the date set for the sale of your property. No sale date may be set until approximately 90 days from the date the attached notice of default may be recorded (which date of recordation appears on the notice).

This amount is ____________ as of ___(date)____________and will increase until your account becomes current.

While your property is in foreclosure, you still must pay other obligations (such as insurance and taxes) required by your note and deed of trust or mortgage. If you fail to make future payments on the loan, pay taxes on the property, provide insurance on the property, or pay other obligations as required in the note and deed of trust or mortgage, the beneficiary or mortgagee may insist that you do so in order to reinstate your account in good standing. In addition, the beneficiary or mortgagee may require as a condition to reinstatement that you provide reliable written evidence that you paid all senior liens, property taxes, and hazard insurance premiums.

Upon your written request, the beneficiary or mortgagee will give you a written itemization of the entire amount you must pay. You may not have to pay the entire unpaid portion of your account, even though full payment was demanded, but you must pay all amounts in default at the time payment is made.

However, you and your beneficiary or mortgagee may mutually agree in writing prior to the time the notice of sale is posted (which may not be earlier than three months after this notice of default is recorded) to, among other things, (1) provide additional time in which to cure the default by transfer of the property or otherwise; or (2) establish a schedule of payments in order to cure your default; or both (1) and (2).

Following the expiration of the time period referred to in the first paragraph of this notice, unless the obligation being foreclosed upon or a separate written agreement between you and your creditor permits a longer period, you have only the legal right to stop the sale of your property by paying the entire amount demanded by your creditor.

To find out the amount you must pay, or to arrange for payment to stop the foreclosure, or if your property is in foreclosure for any other reason, contact:

____________________________________
(Name of beneficiary or mortgagee)

____________________________________
(Mailing address)

____________________________________
(Telephone)

If you have any questions, you should contact a lawyer or the governmental agency which may have insured your loan.

Notwithstanding the fact that your property is in foreclosure, you may offer your property for sale, provided the sale is concluded prior to the conclusion of the foreclosure.

Remember, YOU MAY LOSE LEGAL RIGHTS IF YOU DO NOT TAKE PROMPT ACTION.

If you would like additional copies of this summary, you may obtain them by calling [insert telephone number]. [See first tuesday Forms 471-1, 471-2, 471-3, 471-4, 471-5, 471-6]

Similarly, the summary statement of the NOTS is to be posted and provided to the defaulting owner with the NOTS. The summary statement of the NOTS is not required to be published.

SUMMARY OF KEY INFORMATION

The attached notice of sale was sent to [trustor], in relation to [description of the property that secures the mortgage or deed of trust in default].

YOU ARE IN DEFAULT UNDER A (Deed of trust or mortgage) DATED ____. UNLESS YOU TAKE ACTION TO PROTECT YOUR PROPERTY, IT MAY BE SOLD AT A PUBLIC SALE.

IF YOU NEED AN EXPLANATION OF THE NATURE OF THE PROCEEDING AGAINST YOU, YOU SHOULD CONTACT A LAWYER.

The total amount due in the notice of sale is ____.

Your property is scheduled to be sold on [insert date and time of sale] at [insert location of sale].

However, the sale date shown on the attached notice of sale may be postponed one or more times by the mortgagee, beneficiary, trustee, or a court, pursuant to Section 2924g of the California Civil Code. The law requires that information about trustee sale postponements be made available to you and to the public, as a courtesy to those not present at the sale.

If you wish to learn whether your sale date has been postponed, and, if applicable, the rescheduled time and date for the sale of this property, you may call [telephone number for information regarding the trustee’s sale] or visit this Internet Web site [Internet Web site address for information regarding the sale of this property], using the file number assigned to this case [case file number]. Information about postponements that are very short in duration or that occur close in time to the scheduled sale may not immediately be reflected in the telephone information or on the Internet Web site. The best way to verify postponement information is to attend the scheduled sale.

If you would like additional copies of this summary, you may obtain them by calling [insert telephone number]. [See first tuesday Forms 474-2, 474-3, 474-4, 474-5, 474-6, 474-7]

The summary statements are to be provided in a translation if mortgage negotiations were originally in:

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

Related topics:

Posted by Elizabeth T. Pardo | Apr 11, 2014 | Feature Articles, Laws and Regulations, Real Estate | 1

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

Read on to make sure you—and your clients—know how to handle boundary fence costs.

Agent responsibilities to buyer or seller

When you’re representing a seller, part of the due diligence inspection and walk-through of the property involves noting any items in need of repair — including fences. If it’s a shared boundary fence, it’s your responsibility to educate the seller on the 30-day notice required on boundary fence repairs. This procedure may prolong not only repairs to the boundary fence, but the sale of the house.

Whether or not the property requires boundary fence maintenance, pass the new notice requirements along. If the buyer requests the fence be repaired as part of the purchase negotiations and the seller agrees, the seller gives the 30-day notice of repairs to their neighbor. However, if the buyer accepts the condition of the property in its present “as disclosed” condition, the buyer assumes responsibility of the fence after escrow closes. In this case, the buyer needs to know the 30-day notice process required if the buyer is to have the adjoining owner cooperate in the cost of the fence repair or replacement.

Need to brush up on boundary fences?  We’ve got you covered.

Boundaries: the basics

A boundary is any structure or monument between two adjoining landowners. Boundaries can be anything — a large tree trunk, ditch or improvement. Common boundaries include a:

• waterway,
• driveway, or
• manmade fence.

Notification given to other landowners

The most common type of boundary is a shared fence, also known as a boundary fence. Disputes about who is responsible for the cost of erecting and maintaining boundary fences often crop up between neighbors. Here are the new rules for 2014:

Before construction, maintenance or replacement of a boundary fence, an owner of any real estate is required to give a 30-day written notice to each neighbor who shares responsibility for the fence. [Calif. Civil Code §841]

Unless otherwise specified by alternative written agreement between adjacent property owners, each owner is equally responsible for the reasonable costs of construction, maintenance or replacement.

The 30-day written notice defines each owner’s responsibility for sharing the cost of maintaining the boundary fence. [See first tuesday form 323]

Related articles:

Common boundary fences — an owner’s 30-day notice to construct, replace or maintain the fence

Cost contributions — yours and mine

The exception to equally sharing the costs incurred by boundary fences is if the costs are considered unreasonable. Costs are unreasonable if:

• the financial burden for one owner is substantially higher than the benefit of the fence to that owner;
• the cost of the fence exceeds the difference in value of any of the owners’ land before and after the fence’s installation;
• the construction or maintenance of the fence imposes an undue financial hardship on either owner;
• the construction or maintenance are unnecessary or excessive; or
• the costs are a result of one owner’s aesthetic or architectural preferences. [Calif. Civil Code §841]

Consider a property owner who decides to upgrade their landscaping for cosmetic purposes. Part of their renovation calls for them to update a boundary fence shared with a neighbor. The fence is structurally sound, but the property owner tells their neighbor the boundary fence is “old and ugly looking.” No preexisting agreement compels the neighbor to pay for a share of the boundary fence upgrade. Still, 30 days before the property owner begins the boundary fence update, the property owner delivers to their neighbor a written disclosure of the neighbor’s responsibility for part of the cost of the upgrade.

The neighbor objects to the boundary fence upgrade, and refuses to pay for a cosmetic upgrade. The neighbor makes their objection known to the property owner. The property owner ignores the neighbor’s objections and continues with the upgrade.

After the boundary fence is rebuilt, the property owner sends their neighbor a bill for a portion of the cost of the fence upgrade. The neighbor refuses to pay, claiming the property owner’s work on the fence was purely cosmetic and thus the neighbor was not compelled to pitch in for the fence upgrade costs.

Is the property owner able to compel payment from their neighbor for a portion of the fence cost?

No! A neighbor is not compelled to pay unreasonable costs in the maintenance or repair of a boundary fence. Here, the property owner’s purely cosmetic upgrade is considered an unreasonable cost.  [CC §841]

If your buyer or seller are considering a boundary fence repair or upgrade, have your client talk to the neighbor about the boundary fence repair before serving the mandatory notice. Concerns about cost or responsibility are easier to broach in person, rather than by service of a notice. Sometimes, it’s good neighbors who make good (boundary) fences.

Related topics:
boundary fences

Posted by ft Editorial Staff | Sep 15, 2014 | 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 A.B. 2100
Effective date: July 21, 2014

A homeowners’ association (HOA) is prohibited from imposing a fine or assessment on property owners for not watering plants and lawns during a state- or local government-declared drought.

Related topics:

Posted by ft Editorial Staff | Oct 7, 2014 | 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 and 4736
Added and amended by S.B. 992
Effective date: September 18, 2014

A homeowners’ association (HOA) is prohibited from:

• including terms in its landscaping guidelines or policies which prohibit the replacement of existing turf with drought-tolerant plants; and
• requiring owners to pressure wash the exterior of their property or common areas during a government-declared drought.

An HOA which uses recycled water for landscape watering is permitted to impose a fine on a property owner who fails to sufficiently water their lawn.

Related topics:

Posted by ft Editorial Staff | Sep 15, 2014 | Laws and Regulations, New Laws, Property Management, Real Estate, Your Practice | 3

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

Calif. Civil Code §§4528 and 4530
Amended by A.B. 2430
Effective date: January 1, 2015

A homeowners’ association (HOA) is required to itemize and provide to a seller of a separate interest within a common interest development (CID) the cost of providing CID disclosures to a buyer. The HOA may not charge extra for electronic delivery of the disclosures.

The HOA is to provide the itemized cost disclosure prior to delivering the disclosures to the seller.

The seller is responsible for paying the HOA the required disclosure fees. Further, the seller is to provide the buyer:

• current copies of the CID disclosures in possession of the seller, at no cost to the buyer; and
• the itemized statement detailing the fees incurred for each disclosure document provided to the seller by the HOA.

In delivering disclosures to the buyer, the seller may not bundle non-CID disclosures with CID disclosures.

Editor’s note — CID disclosures include the covenants, conditions and restrictions (CC&Rs), bylaws, operating rules, etc. 

Related topics:

Posted by Matthew Taylor | May 19, 2014 | Change The Law, Real Estate, Tax | 11

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

Palm Desert Assembly member Brian Nestande said it best: “It must be a cold day in hell. The cow jumped over the moon. And pigs are flying somewhere.”

The Howard Jarvis Taxpayers Association (HJTA) has withdrawn its opposition to Assembly Bill 2372. AB 2372 proposes to close a longstanding loophole in the 1978 Proposition 13 (Prop. 13) property tax law. This statement follows HJTA’s indication last year that they and other tax watchdogs were “open to narrow legislation to fix the law.”

The laws implementing Prop. 13 enable incorporated property owners to skirt reassessment by gaming the legislation’s definition of “transfer of ownership.” Under the current scheme, reassessment is triggered only if one person or entity gains a majority ownership interest in the transferred property (or an entity which owns the property).

AB 2372 instead provides that a change in ownership occurs when 100% of the ownership interest in a property or a property-owning entity is transferred in a single transaction, regardless of whether anyone takes a majority stake.

The fact HJTA has decide not to oppose AB 2372 is a huge development for several reasons.

First, HJTA is Prop. 13’s foremost cheerleader and the namesake of the proposition’s godfather. The eponymous Howard Jarvis, a lobbyist for the Los Angeles Apartment Owners Association (LAAOA), was instrumental in the design and passage of the ballot initiative. His employment with the LAAOA says a great deal about what type of property owner the law was truly designed to benefit.

The Jarvis legacy organization’s refusal to fight the closure of a loophole benefiting corporate property ownership is a testament to Prop. 13’s inequitable tax protections.

Second, HJTA’s demurrer to the proposed legislation indicates the clouds of public misunderstanding are finally parting.  According to the Los Angeles Times, a recent Gallup poll revealed 69% of voters were in favor of changing Prop. 13 to ensure that large, expensive properties are reassessed fairly when they change hands.

Californians are coming to an overdue realization: Proposition 13 needs serious reworking.

Taking taxpayers for a ride

Here’s how incorporated owners milk the law’s protections: under Prop. 13, property tax reassessment is triggered when any one entity attains a 50% or greater ownership stake upon the transfer of a property. Large property owners and their tax attorneys structure deals so properties are bought and sold through consortia and shell companies in which no one party holds a majority stake. Thus, when the transfer of property occurs, reassessment isn’t triggered since a change of ownership hasn’t taken place. Technically.

Just recently, this issue came up in Los Angeles when real estate giant Brookfield acquired millions of square feet of downtown office space. Brookfield avoided reassessment of extremely valuable commercial property by taking title via a new entity in which it has only a 47% stake. The rest of the ownership was split nominally with financial partners. No one person or entity acquired more than 50% ownership in the property, and thus no reassessment was triggered.

Such a maneuver is totally above-board and, from a business perspective, the savvy thing to do. It’s standard practice for big-league property owners and investors. In 2006, tech magnate Michael Dell restructured a multi-million dollar hotel purchase to avoid reassessment. Dell, his wife and other partners took minority stakes in a shell holding company which acquired the property in a highly public last-minute tax dodge. Dell pays property tax on just 43% of the $200 million purchase price.

And Westfield Group, the international operator of fabulously profitable malls, withered controversy last year for chronic under-assessment of their lucrative real estate holdings. A labor group exposed the huge discrepancy between the value of their Century City mall property reported to shareholders and the assessed value on which they paid taxes. That gap – nearly half a billion dollars – came to light even as they asked the City of Los Angeles for millions in subsidies to redevelop another nearby shopping center.

These are just the most high-profile examples. An entire cottage industry of law firms and tax consultants are dedicated to helping corporate property owners exploit the tax haven baked into Prop. 13. Take it from first tuesday readers themselves – one recent commenter with experience in this field says it best:

“…until California figures out there are people like me out there costing the state billions of dollars of lost – and fully appropriate – tax dollars, we will just keep on doing it.”

A lesser evil

We’re not here to argue that the state needs more or less revenue, or that this or that type of taxpayer deserves to pay more or less in tax. Such proclamations are beyond the scope of both this article and our expertise. Increasing taxes is neither the issue nor the goal here.

And we have made it abundantly clear we are not fans of Prop. 13. Prop. 13 is a deeply regressive tax scheme that places an outsize burden on younger, less-established homeowners while stifling sales volume and homeownership in times of inflated prices (read: today). There are better, fairer ways to protect property owners from excessive property tax burdens.

We know we’re in the minority here – and realistically, Prop 13 isn’t going anywhere. Repealing Prop. 13 is political suicide for anyone who dares to undertake such a project.

But that doesn’t mean we can’t improve how Prop. 13 works. A strong argument can be made for a system that ensures both a predictable cost of ownership for homeowners and a stable source of revenue for the operation of the state.

What we are arguing for, and what AB 2372 offers, is a just and rational application of our existing tax law. Eliminating this unequal taxation loophole – which gives corporate buyers a tremendous edge individual homebuyers cannot access ­– is a step in that direction.

It’s far past time for this. If we’re going to live with the uneven tax playing field created by Prop. 13’s unintended side effects, we can at least make sure it applies to everyone equally.

Related topics:
california legislation, commercial property, popular, prop 13, property tax, taxation

Posted by Matthew Taylor | Dec 3, 2014 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Civil Code §§5910, 5915

Amended by A.B. 1738

Effective date: January 1, 2015

Owners of individual interests in a common interested development (CID) and homeowners’ associations (HOAs) or other governing bodies are now expressly permitted to bring legal counsel to represent them during a dispute resolution process. Resolutions are required to be in writing and signed by the disputing owners and the HOA.

Read the bill text

Related topics:
common interest development (cid), homeowners association (hoa), mediation

Posted by Jeffery Marino | Mar 9, 2014 | Laws and Regulations, Real Estate, Tax | 0

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

California real estate relies heavily on tax subsidies. Is a subsidized housing market the best thing for California homeowners and real estate agents?

The necessity of social engineering

A recent article in The Economist asserts,

“Getting from 19th century misery to 20th century prosperity took a lot of social and governmental reform and investment. It is unreasonable to think that similarly grand shifts would not be necessary now. It is also unreasonable to expect that this transition should require qualitatively similar reforms to those which did the trick in the 20th century.”

The 19^th century misery of which the author speaks can be characterized by one phrase: income inequality. Sticking specifically to the American economic landscape, one thinks of wealthy industrialists like Rockefeller and Ford wielding an iron fist over factory workers earning a lowly wage. It was this long-term wealth disparity between the underclass and the rentiers that created the conditions of possibility for the Great Depression.

The creation and subsequent grand expansion of the American middle class took, as the author remarks, some serious social engineering. While much of it began around the turn of the 20^th century with the growing labor union movement, the middle class ultimately took shape as a result of the New Deal and the economic prosperity catalyzed by WWII.

Much of the past 80 years has been spent unwinding the progressive policies set in place in the early 20^th century. While this mainly occurred via the deregulation of the financial services sector, fiscal housing policy also played an instrumental role in the battle over wealth distribution in the U.S.

Housing’s regressive tax regimes

Ever since the Baby Boomers exploded into suburbia, single-family residential (SFR) real estate has been the greatest store of wealth for the middle class. As such, real estate has proved a fertile battleground for the continued antipathy between tax-and-spend liberals and the so-called fiscal conservative tax hawks.

Fiscal issues surrounding housing policy, including the mortgage interest tax deduction (MID) and property tax reform, really defy political pigeonholing. On one hand, arguing to eliminate the MID comes across as liberal tax-and-spend ideology, since doing so effectively (if only nominally) raises many Americans’ tax bills. On the other, if the MID is seen for what it truly is, which is a social welfare program to subsidize homeownership, the charge to eliminate it falls in line with conservative ideology.

A similar contradiction exists in the property tax arena, especially in California where Prop. 13 controls. Depending on the weather, Prop. 13 might be viewed as a regressive tax regime benefiting the wealthy at the expense of middle-income taxpayers. Or it might be seen as a necessary tax cut to “keep our money out of Sacramento.”

Economic issues are best solved outside of the political arena. That’s why we prefer to take a more utilitarian approach — which policy provides the most benefit to the greatest number of people?

The California real estate market needs reform of both the MID and Prop. 13. We’ve entered a period of secular stagnation — long-term economic malaise — as middle-income earners have suffered wage erosion and the past several recessions have produced jobless recoveries. Fiscal reform and stimulus must step in to supplement the less than modest demand being generated by a sluggish jobs recovery. While this may occur on a number of strata, reforming these aspects of housing policy will keep the tax burden squarely on the shoulders of older, more established homeowners and give Gen Y a chance to enter the housing market.

first tuesday annals, think tanks and university studies have all shown the MID artificially inflates prices and does little to benefit the middle class. In fact, its main beneficiaries are wealthy who purchase high-tier properties and second homes.

Likewise, Prop. 13 offsets the tax burden from older, established (read: wealthy) residents on to younger, more modestly paid families responsible for new household formation.

This is not an argument for reform based on an abstract notion of political equality. It’s down to brass tacks (or tax). The middle class is the Atlas supporting the California real estate market: it does the bulk of the buying and selling — and incidentally, the employing of real estate professionals. But the middle class is shrinking. Who will ensure the  livelihood of our dear readers, if the middle class continues to thin?

Creative destruction

A recent editorial published in the New York Times discusses the possibility of taxing imputed rents.

First, the definition of imputed rents. Every homeowner pays a dual role:

• a consumer of shelter, such as any tenant; and
• a real estate investor, such as any landlord.

As a consumer of shelter, when a homeowner makes a mortgage payment, they are paying rent (the imputed rent in the editorial’s scheme). Rent is an expense for the homeowner, as a consumer.

As an investor (owner of the property), the homeowner’s equity increases each time they make a mortgage payment. This is a form of income for the same homeowner, in their role as an investor.

The editorial proposes that all rents are taxed as income – meaning owner-occupants and landlord/investors all pay for the benefit of receiving rents, be they imputed or actual. Likewise, they each are eligible for write-offs like the MID and depreciation and maintenance deductions. This creates a “tax neutral” scenario where taxes paid on rental income — again, imputed or actual — are offset by deductions. Everyone is treated the same.

But if tax neutrality is the goal, why not simply eliminate the MID? The current MID offers homeowners (with mortgages) the tax write off without taxing imputed rents — the income derived from their investment. In other words, homeowners are treated as investors in terms of subsidies but not in terms of revenues.

Add Prop. 13 to this picture and one quickly sees how heavily tax-favored California housing truly is. Under the current regime, wealthy homeowners enjoy deductions for mortgage interest and property tax plus tax shelter from reassessments of their bloated high-tier property value. All this without paying income tax on imputed rent.

Rather than adding more confusion to an already convoluted tax code by taxing imputed rental income, how about destroying the subsidies altogether? The average middle-income homeowner benefits from these subsidies by name only — they are tantamount to a propaganda campaign to encourage homeownership while offering little real value. The wealthy, long-term owners of high-tier and second homes, benefit tremendously from the subsidies. Eliminate them to right the ship of fiscal housing policy while generating more revenue to boot.

Fiscal stimulus via tax reform

As alluded to in the beginning of this article, issues of housing policy and taxation are largely a matter of perspective. Rather than thinking of the elimination of the MID and Prop. 13 as raising taxes, we prefer to think of it as economist Timothy Taylor does:

“The goal over the medium terms should be to make the housing market less tax-favored. It would benefit the U.S. economy to focus less on housing and more on investments that generate future economic growth. Most of the tax benefits of housing go to those with well above-average incomes — since these are the people who are living in bigger houses and itemizing deductions.”

We couldn’t say it any better.

Phasing out the MID and Prop. 13 amounts to closing tax loopholes for the wealthy and leveling the playing field for the middle class. And that’s something we desperately need to do in order to keep the market alive.

It is counterintuitive to be sure, and many who would benefit from rolling back these programs vociferously defend them. What they don’t see is that they’re defending an ideology that maintains income inequality, that corrupts the fundamentals of real estate economics and that leads to continuous stagnation in the California real estate market. But this is how the most successful and insidious social policies work — by luring the masses with a basket of bread while their wealthy overlords plunder the fields.

Beat the drum on this one, readers. Without a change, your base clients will begin to dwindle – and there are only so many multi-million dollar property listings to go ’round.

Related topics:
income inequality, mortgage interest tax deduction (mitd), prop 13, proposition 13, rentiers, secular stagnation

Posted by Elizabeth T. Pardo | Apr 9, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A debtor filed for Chapter 7 bankruptcy. The debtor declared $75,000 of net equity in their home was protected by California’s homestead exemption. During the proceedings, the debtor claimed two liens were placed against the home, exceeding the home’s non-exempt value and leaving no equitable recovery for creditors. The trustee assigned to the debtor’s bankruptcy case discovered the second trust deed was fictitious and contested it in court, incurring administrative fees.

Claim: The trustee sought compensation for the administrative fees through the $75,000 homestead exemption, claiming the surcharge was proper to compensate the estate for the costs created by the debtor’s misconduct since the debtor committed fraud to exempt their home from bankruptcy proceedings.

Counter claim: The debtor claimed the administrative fees may not to be deducted from the homestead exemption since the homestead exemption protects $75,000 of net equity in the home from all claims.

Holding: The United States Supreme Court held the trustee was not entitled to compensation for administrative fees from the owner’s $75,000 homestead exemption since the entire amount of the exemption is protected and may not be used to pay debts and expenses. [Stephen Law v. Alfred H. Siegel (2014) _US_]

Editor’s note — So did the deceitful debtor get off scot-free? No. The bankruptcy court may impose sanctions for bad-faith litigation conduct (such as claiming the existence of a completely fictitious trust deed) and require the payment of attorney fees and corresponding administrative fees resulting from the violation. A bankruptcy’s sanction survives a bankruptcy case and is later enforceable under normal money judgment collection efforts. Further, fraudulent conduct in a bankruptcy case may subject the debtor to criminal penalties with a maximum penalty of five years in prison. [18 United States Code §152]

Related topics:
chapter 7 bankruptcy, homestead exemption

Posted by ft Editorial Staff | Dec 26, 2014 | Investment, Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: An investor arranges to purchase a property at a foreclosure sale in partnership with two investment companies. A trustee’s deed is prepared naming the first investment company as 75% owner, the second investment company as 25% owner and the investor as a grantee with no specified ownership interest. The trustee’s deed is altered prior to recording, removing the investor’s name and leaving only the investment companies named as co-owners. Later, the first investment company quitclaims to the second company, and the second company then sells the property to a buyer without the knowledge of the investor.

Claim: The investor seeks to quiet title to the property, claiming the buyer’s interest in the property is void since the trustee’s deed was tampered with prior to recording and therefore the transfer of title to subsequent purchasers is invalid.

Counterclaim: The buyer seeks to retain title to the property, claiming the deed remains valid as the alterations made to it are immaterial since the investor is named merely as grantee with no specified share of interest in the property on the original trustee’s deed.

Holding: A California Court of Appeals held the buyer may retain title to the property, since the alteration of the trustee’s deed prior to recording was not material to the function of the instrument and thus the deed, and the buyer’s title to the property, are valid. [Lin v. Coronado (2014) ___ CA4th ___]

Related topics:
foreclosure sale, grant deed, title dispute, trustees sale

Posted by Sarah Kolvas | Nov 14, 2014 | Laws and Regulations, Mortgages, Real Estate, Recent Case Decisions | 0

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

Facts: A homeowner obtains a mortgage on their property and later defaults. The lender records a notice of default (NOD) and, subsequently, a notice of trustee sale (NOTS). At the request of the homeowner, the lender postpones the trustee’s sale several times. Before a scheduled sale, the homeowner speaks with the lender over the phone and is verbally granted a postponement of the sale to a later date. However, on the previously scheduled auction date, the auctioneer announces and confirms in writing a different postponement date, setting the next auction date several days sooner than what the lender told the homeowner. The homeowner does not confirm the new postponement date as they had done for previous postponements. The lender proceeds with the trustee’s sale on the earlier date announced by the auctioneer and the property is sold at auction.

Claim: The homeowner seeks money losses from the lender, claiming the lender breached the agreement under promissory estoppel since the lender completed the trustee’s sale sooner than the date it provided to the homeowner verbally, preventing them from curing their default and causing them to lose their equity in the property.

Counter claim: The lender claims the oral agreement was not enforceable under promissory estoppel since the homeowner could not prove they were harmed by the lender’s representations as the homeowner failed to show they had the ability or intention to cure the default.

Holding: A California court of appeals held the homeowner was not entitled to money losses for breach of the agreement since the homeowner failed to prove detrimental reliance on the lender’s representations as the homeowner did not show they had the ability or intention to cure the default by the postponement date the lender provided verbally over the phone. [Jones v. Wachovia Bank (September 22, 2014)_CA4th_]

Related topics:

Posted by Elizabeth T. Pardo | Apr 25, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A local government contracted with a developer to build and qualify low- to moderate-income buyers for an affordable housing complex. The total allowable purchase price per unit was capped. Under the affordable housing program, the developer was to approve qualifying purchase paperwork from potential buyers and submit the approved contract to the local government to issue a qualifying compliance certificate. A buyer, whose income exceeded the program threshold, submitted a purchase offer exceeding program caps. The developer did not disclose the complex was designated as affordable housing. The developer accepted the offer, misrepresented the buyer’s income in the purchase application and sent it to the local government. The local government erroneously issued the buyer a compliance certificate based on the misrepresented income provided by the developer. The developer later went bankrupt, after which the buyer discovered the house was in an affordable housing project. The buyer forfeited the property and the local government reimbursed the buyer for the property’s cost.

Claim: The buyer sought further money losses from the local government, claiming the local government failed to disclose the housing and income restrictions to the buyer, since the buyer did not qualify and paid a purchase price in excess of the affordable housing threshold.

Counter claim: The local government claimed it was not liable for the buyer’s money losses since it was the developer who erroneously reported the buyer’s income for the compliance certificate, making the local government immune from prosecution as a public entity.

Holding: A California court of appeals held the local government was not liable for the buyer’s further money losses since it was not the local government’s responsibility to acquire or verify the buyers’ income information, merely to issue compliance certificates based on the contract approved by the developer.  [Tuthill v. City of San Buenaventura (February 12, 2014) _CA4th_]

Related topics:
homebuyer

Posted by ft Editorial Staff | Sep 19, 2014 | Laws and Regulations, Property Management, Real Estate, Recent Case Decisions | 1

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

Facts: A buyer enters into a purchase agreement for a commercial property for their business. Before closing escrow, the buyer discovers an existing neighbor using an easement over the property for service vehicles. The buyer demands the neighbor cease using the easement. The neighbor agrees, but does not discontinue their use of the easement. The buyer observes the neighbor’s continued use and does not discuss it further with the seller of the property or the neighbor. After escrow closes, the neighbor informs the buyer they hold prescriptive easement rights over the buyer’s property for ingress and egress due to their long-term use of the area and seek to prevent the buyer from interfering with their use of the easement.

Claim: The buyer seeks to quiet title to the easement, claiming the neighbor committed fraud since they concealed information and misrepresented facts to the buyer when they agreed to discontinue their use of the easement area, implying they did not hold any easement rights.

Counter claim: The neighbor claims their conduct was not fraudulent since they had no duty to disclose their easement rights to the buyer.

Holding: A California court of appeals denied the buyer’s quiet title action and held the neighbor’s conduct was not fraudulent since the neighbor did not have any obligation or duty to disclose their prescriptive easement rights to the buyer and the buyer did not have justifiable reason to rely on the neighbor’s statement as the buyer witnessed the neighbor’s continued use of the easement despite their previous conversation. [Hoffman v. 162 North Wolfe LLC (July 15, 2014)_CA4th_]

Related topics:
easements

Posted by Sarah Kolvas | Oct 6, 2014 | Investment, Laws and Regulations, Real Estate, Recent Case Decisions, Tax | 0

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

Facts: A partnership formed by a family trust establishes an LLC, naming the partnership as its sole member, to hold title to a property. The trust transfers all ownership interests in the partnership to various subtrusts and, from the subtrusts, conveys 90% of the partnership interests to separate trusts held by different trustees. Thereafter, the county imposes a documentary transfer tax based on the value of the LLC’s property due to the change in ownership of the property following the transfer of interests in the partnership. The LLC pays the tax.

Claim: The LLC seeks a documentary transfer tax refund, claiming the transfer of interests in the partnership owning the LLC did not trigger a documentary transfer tax since neither the property nor the LLC owning the property were sold as only the partnership owning the LLC changed ownership.

Counter claim: The county claims the documentary transfer tax applies to the transfer since the tax is subject to the same rules as property tax, which hold the transfer of more than 50% of the interest in a partnership following an exempt transfer — conveying interests from the family trust to subtrusts — constitutes a change in ownership of the partnership and, thus, the LLC it owns and any property held by the LLC.

Holding: A California court of appeals held the county properly imposed the documentary transfer tax on the LLC since the transfer of more than 50% of the ownership interest in the partnership owning the LLC constituted a change in ownership of the LLC and property held by the LLC and, thus, subjected the LLC to a documentary transfer tax. [926 North Ardmore Avenue LLC v. County of Los Angeles (September 22, 2014)_CA4th_]

Related topics:

Posted by Matthew Taylor | Nov 6, 2014 | 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 and tenant agreed the tenant was to pay rent through a designated rent payment website. The tenant’s rent became delinquent, and the landlord served the tenant with a three-day notice to pay rent or quit. The notice demanded the delinquent rent be paid to the landlord’s designee through the rent payment website. The tenant did not tender payment and the landlord obtained an unlawful detainer (UD) judgment against the tenant.

Related article: Late fees and the three-day notice to pay rent or quit

Claim: The tenant sought to reverse the unlawful detainer judgment, claiming the three-day notice was not valid since the landlord did not provide a physical address to which the rent payment was to be delivered as required by the statute outlining the procedure for enforcing a three-day notice to pay rent or quit.

Counterclaim: The landlord sought to maintain the unlawful detainer judgment against the tenant since the designated rent payment website which had been previously used satisfied the statutory requirement that the three-day notice indicate an address to which payment is to be delivered and thus the notice was valid.

Holding: A California court of appeals held the unlawful detainer judgment was improper since the three-day notice to pay rent or quit was not valid, as the landlord did not provide a physical address to which the payment was to be made as required to enforce the three-day notice. [Foster v. Williams (2014) 177 Cal.Rptr.3d 371; see first tuesday Form 575]

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

Posted by Sarah Kolvas | Oct 30, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 2

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

Facts: A developer employs a contractor to construct commercial property for a property owner. The contractor then employs a subcontractor to perform infrastructure work for the development. The subcontractor does not enter into a contract with the property owner, only the contractor. After the subcontractor completes their work, the contractor fails to compensate them. The subcontractor records a mechanic’s lien on the owner’s property and later forecloses. The subcontractor is further awarded the statutory prejudgment interest of 10% for breach of contract to be paid by the property owner and the contractor.

Claim: The property owner seeks to reduce their interest rate to the constitutional default rate of 7% for judgments, claiming the statutory default rate of 10% for breach of contract does not apply to them since they did not enter or breach a contract with the subcontractor, as only their contractor did.

Counter claim: The subcontractor claims the property owner is liable to pay the statutory interest rate of 10% on the judgment for breach of contract since they are entitled to recover the amount due pursuant to their contract.

Holding: A California court of appeals held the property owner is only liable to pay the constitutional default rate of 7% for judgments since they did not enter a contract with the subcontractor and, thus, though they are still liable under mechanic’s lien law, they are not subject to the statutory default rate of 10% for breach of contract. [Palomar Grading & Paving, Inc. v. Wells Fargo Bank (October 14, 2014)_CA4th_]

Related topics:

Posted by Matthew Taylor | Dec 16, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: An owner of property constructs a water runoff retention basin adjacent to a common interest development (CID) located immediately downhill from the property as part of an expansion of improvements on the uphill property. The retention basin proves inadequate to handle the runoff from the uphill property, causing overflow and seepage, which damages units in the downhill CID property. The uphill property owner proposes the CID homeowner’s association (HOA) construct a runoff interception trench on the CID property to address the retention basin runoff problem, which the HOA rejects.

Claim: The HOA seeks to require the uphill property owner to remove the retention basin, claiming that being required to construct an interception trench on their property confers a private right of eminent domain on the uphill property owner over the CID property.

Counterclaim: The uphill property owner seeks to require the HOA to construct the interception trench, arguing the forced removal of the retention basin causes undue harm on the operational viability of the uphill property.

Holding: A California Court of Appeals holds the uphill property owner needs to remove the retention basin as the harm caused to the downhill CID by the basin overflow problem is irreparable and the proposed interception trench solution confers a private right of eminent domain over the CID property on the part of the uphill property owner. [Aspen Grove Condominium Association v. CNL Income Northstar LLC (2014) 231 CA4th 53]

Read the text of the decision

Related topics:
common interest development (cid), eminent domain

Posted by Matthew Taylor | Nov 20, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 2

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

Facts: An owner of a property located in a Common Interest Development (CID) became delinquent in payment of regular assessments levied by the homeowners’ association (HOA). The HOA recorded an assessment lien on the owner’s property for the amount of the delinquent payments, late charges and related costs and fees. The owner established a payment plan with the HOA to cure the delinquency, on which the owner later defaulted. The owner made a partial payment which brought the amount of delinquent assessments, exclusive of fees and charges, to less than $1,800—the threshold for collecting delinquent assessments through judicial or nonjudicial foreclosure. The HOA rejected the partial payment and moved to foreclose on the owner’s property.

Claim: The owner sought to stop the foreclosure proceedings and reinstate the payment plan, arguing the HOA is required to accept and apply partial payments to delinquent assessments first and is prohibited from seeking to foreclose on an assessment lien when the delinquent assessment amount is less than $1,800, exclusive of fees and charges.

Counterclaim: The HOA sought to complete the foreclosure process, claiming it was not compelled to accept partial payments since the payment plan had become delinquent and thus the entire amount of the assessment in default was greater than the $1,800 threshold for assessment lien foreclosure.

Holding: A California Court of Appeals held that the HOA was required to accept the partial payment and apply it to the delinquent assessment amount before any charges and fees and, since the partial payment reduced the delinquent assessments to less than $1,800, the HOA was prohibited from foreclosing on the assessment lien. [Huntington Continental Townhouse Association, Inc. v. Miner (2014) 230 CA4th 590]

Related topics:
common interest development (cid), default, homeowners association (hoa), lien

Posted by Sarah Kolvas | Oct 31, 2014 | Appraisal, Laws and Regulations, Real Estate, Recent Case Decisions | 2

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

Facts: A buyer enters into a purchase agreement for vacant land. The agreement contains contingency provisions enabling the buyer to evaluate surveys and other information about the property to determine its suitability, but does not include an appraisal contingency. The buyer then seeks financing from a lender, who employs an appraiser to determine the property’s adequacy as collateral. The appraiser completes the appraisal, indicating on the report the appraisal is solely intended for use by the lender. The buyer considers the appraisal in their purchase of the property and closes escrow. Later, the buyer discovers an earthquake fault line runs through the property and a portion of the property is soon to be subject to a public roadway, which was not reflected in the value determined by the appraiser.

Claim: The buyer seeks money losses from the appraiser, claiming the appraiser committed negligent misrepresentation since the appraised value did not reflect the fault line or development of a roadway, and the buyer reasonably relied on the appraisal report as per the contingency provisions in the purchase agreement.

Counter claim: The appraiser claims they did not commit negligent misrepresentation since the buyer did not have justifiable reason to rely on the appraisal report as it was only intended to be used by the lender to determine whether the property was adequate collateral and the buyer’s purchase agreement did not contain an appraisal contingency provision.

Holding: A California court of appeals held the appraiser did not commit negligent misrepresentation since the buyer did not have justifiable reason to rely on the appraisal as it was only intended for the lender, not the buyer, and the buyer failed to convey their intention to review an appraisal report when they did not include an appraisal contingency provision in the purchase agreement. [Willemsen v. Mitrosilis (October 14, 2014)_CA4th_]

Related topics:

Posted by Sarah Kolvas | Nov 4, 2014 | Laws and Regulations, New Laws, Real Estate, Tax | 0

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

Calif. Revenue and Taxation Code §§23304.1 and 23305.5
Amended by A.B. 1143
Effective date: September 15, 2014

Beginning January 1, 2014, contracts entered into by a foreign limited liability company (LLC) which has:

• not qualified to do business in California;
• does not have an account number with the FTB; and
• failed to file a California tax return;

are voidable by other parties to the contract.

This contract voidability is effective for all contracts entered into from the beginning of the year for which the LLC failed to file a tax return until:

• the date the LLC qualifies to do business in California; or
• the date it obtains an account number with the FTB.

 

Related topics:
limited liability company (llc)

Posted by Matthew Taylor | Dec 30, 2014 | Laws and Regulations, New Laws, Property Management, Real Estate | 0

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

Calif. Civil Code §§1940.10; 4750

Added by A.B. 2561

Effective date: January 1, 2016

Residential landlords of 1-to-2 unit properties may not prohibit tenants from growing food crops in private outdoor spaces for personal consumption or off-site donation. Crops may be grown in portable outdoor containers of a type and in a configuration approved by the landlord. The portable containers are to be located only on the ground level of the rental property, i.e., no balconies or rooftops.

The following restrictions apply:

• the tenant is required to regularly remove dead plants and weeds;
• the growing containers may not impede access, obstruct parking spaces or cause a safety issue; and
• the crops may not interfere with maintenance of the property.

Landlords may prohibit the use of chemical pesticides, herbicides and other hazardous substances. Additionally, they may require the tenant to agree in writing to pay for any excess water or waste removal fees related to the crops.

A landlord may still restrict a tenant from growing food crops directly in the soil of a rental property. The landlord may inspect growing areas to ensure compliance, after serving 24 hours’ written notice of inspection to the tenant. [Calif. Civil Code §1954(D)(1)]

Common interest developments

Likewise, any homeowners’ association (HOA) bylaw which prohibits the owner of a common interest development (CID) unit from planting food crops in the owner’s private backyard is unenforceable. However, an HOA may:

• enact reasonable restrictions to personal agriculture (e.g., limiting the height of plants grown) which do not increase the cost of growing crops; and
• require the owner to remove dead plants and weeds.

Read the bill text

Related topics:
common interest development (cid), homeowners association (hoa), landlords,

Posted by ft Editorial Staff | Apr 2, 2014 | Pending Laws, Real Estate | 0

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

Legislative Gossip Years: 2009 / 2010 / 2011 / 2012 / 2013
Last Updated: September 2, 2014

Here’s a list of the 2013 Legislative Session’s bills and Department of Real Estate Regulations which may substantially affect how you do business as a real estate licensee. Bills are sorted by topic, and we provide you with the bill number, the status, and a brief description of the bill. Reports on passed bills can be found on our Legislative Watch page. This list is updated every month.

Status Legend:

INTRO = Date the bill was originally introduced for consideration. Bill is still being considered, but not yet law.
AMENDED = Date the bill was last amended. Bill is still being considered, but not yet law.
ENROLLED = Bill approved by both houses and pending the governor’s signature.
PASSED = Bill signed by the governor and passed into law.

Finance: Energy
AB 327	PASSED 10/07/13	This bill changes the way energy bills are calculated. Instead of structuring energy rates as tiers based on volume of use, charges are to be based on other measures, such as the time of use (ex: peak hours vs. off-peak hours). This bill also increases the ceiling for refunds to consumers generated by renewable energy sources.
Finance: Mortgage Lending
SB 30	AMENDED 8/13/13	This bill extends the exclusion of forgiven mortgage debt from homeowner income until January 1, 2014.
SB 310	PASSED 9/6/13	This bill shields title companies (other than title companies acting as trustees) from liability for recording a Notice of Default while a borrower is pursuing foreclosure prevention alternatives.
AB 1700	ENROLLED 8/20/14	This bill prohibits a lender from accepting a reverse mortgage loan application or fees in connection with a reverse mortgage application until seven days after the reverse mortgage applicant receives reverse mortgage counseling. This bill also replaces the checklist to be provided by the lender to the applicant with a reverse mortgage worksheet guide listing issues the applicant is to discuss with a loan counselor.
AB 1730	ENROLLED 8/26/14	This bill makes it a felony to charge an advance fee for negotiating, arranging or offering to perform a mortgage loan modification.
Legal Aspects
SB 752	PASSED 10/05/13	This bill provides for the creation and regulation of commercial and industrial common interest developments.
AB 1404	PASSED 8/12/13	This bill requires adjoining landowners to share responsibility for maintaining boundaries and monuments equally.
AB 2039	AMENDED 8/21/14	This bill prohibits the practice of shill bidding on a real estate auction. A seller may appoint someone to bid on their behalf, but this is to be disclosed to all participants. The bill also prevents lenders and auction companies from requiring a homeowner or seller’s agent to defend a lender or auction company from liability as a condition for the lender’s approval.
Practice: Due Diligence
SB 652	PASSED 9/30/13	This bill requires the seller of a one-to-four unit residential property to disclose on the transfer disclosure form any claims they’ve made for damages relating to construction deficiencies in the property.
SB 676	PASSED 9/24/13	This bill authorizes the Real Estate Commissioner to suspend or revoke a broker’s or agent’s license if they are found to have falsified, destroyed, concealed, or otherwise unlawfully altered any of the documentation required to be kept available for three years or sought in connection with an investigation or audit.
AB 2018	ENROLLED 8/22/14	This bill authorizes a broker to maintain ownership of a fictitious business name, and authorizes a salesperson to apply for a fictitious business name. A team name which is used by two or more licensees, includes a licensee’s surname with “associates,” “groups” or “team” and does not imply an entity independent of a broker may be used without filing for a fictitious business name.
SB 1171	PASSED 8/15/14	This bill requires real estate agents in a commercial property transaction to provide the seller and buyer with an agency law disclosure.
AB 2540	PASSED 8/25/14	This bill requires California Bureau of Real Estate (CalBRE) license applicants to provide valid contact information on their license applications, and requires current licensees to update their mailing address, telephone number and email address no later than 30 days after making a change.
SB 1459	PASSED 7/10/14	This bill adds a two-hour California-specific component to the pre-licensing education required for mortgage loan originator license/endorsement applicants. This bill also adds a one-hour California-specific component to the continuing education requirements for licensed/endorsed mortgage loan originators.
Property Management
SB 612	PASSED 8/19/13	This bill permits a tenant to terminate their tenancy if they have been a victim of human trafficking or elder or dependent adult abuse based on documentation from a health practitioner, domestic violence or sexual assault counselor or a human trafficking case worker.
SB 1072	PASSED 6/25/14	This bill adds “aviation activities” to the list of recreational activities undertaken on a property which do not trigger a property owner’s duty to give a warning of hazardous conditions.
AB 2100	PASSED 7/21/14	This bill prohibits homeowners’ associations from fining owners for under-watered plants and lawns during state-declared droughts.
SB 1144	INTRO 2/20/14	This bill prohibits a city, county and homeowners’ association from fining owners for under-watered plants and lawns during state-declared droughts.
AB 2104	ENROLLED 8/20/14	This bill prohibits homeowners’ associations from enforcing provisions which forbid the replacement of existing turf with drought-resistant plants.
Taxation
AB 792	PASSED 10/04/13	This bill exempts property owners who generate and consume clean, renewable energy  on their properties from paying local utility consumption taxes.
AB 2358 & SB 339	AMENDED 2/18/14	This bill extends exclusion of principal residence indebtedness from income if that debt is discharged before January 1, 2014. This bill also retroactively refunds taxes already paid on principal residence indebtedness discharged between January 1, 2013 and January 1, 2014.

Related topics:
loan modification

Posted by Sarah Kolvas | Oct 14, 2014 | Laws and Regulations, New Laws, Property Management, Real Estate | 0

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

Calif. Civil Code §4775
Amended and added by A.B. 968
Effective date: January 1, 2017

Until December 31, 2016, unless stated otherwise in the common interest development (CID) covenants, conditions and restrictions (CC&Rs), the owner of a separate interest in a CID is responsible for maintaining their property and any exclusive use common area appurtenant to it.

On and after January 1, 2017, unless stated otherwise in the CID CC&Rs, an owner is also responsible for repairing and replacing their property. While the owner is still responsible for maintaining an exclusive use common area, the homeowners’ association (HOA) is now responsible to repair and replace it, when necessary.

Related topics:

Posted by ft Editorial Staff | Oct 16, 2014 | Laws and Regulations, Mortgages, Real Estate, Recent Case Decisions | 0

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

Facts: A seller conveys their commercial property to a buyer, carrying back a note secured by a second trust deed on the property. The first trust deed is held by a different lender. The buyer acquires a risk insurance policy to guarantee the seller replacement costs if the property is damaged, as required by the carryback note. Later, the buyer defaults on the loans. The seller then discovers the buyer has severely damaged the property. Thereafter, the lender holding the first trust deed commences foreclosure and the seller purchases the senior lender’s interest in the property to stop the foreclosure. The seller then submits their claim to the insurance company and forecloses on the second trust deed, making a full credit bid at the foreclosure sale fully satisfying the money owed them on their carryback note. The insurance company denies the seller’s claim.

Claim: The seller seeks money losses from the insurance company, claiming it breached the contract by not awarding the seller payment for their claim for the damaged property, as entitled to them under the insurance policy.

Counter claim: The insurance company claims the seller is not entitled to payment for their claim since the seller placed a full credit bid at the foreclosure sale, thus establishing the property’s value as equal to their debt and barring them from collecting additional recovery under the insurance policy.

Holding: A California court of appeals held the seller is not entitled to payment from the insurance company since the seller knew of the property’s diminished value and still made a full credit bid at the foreclosure sale, establishing the value of the property as equal to the seller’s debt and preventing them from recovering additional relief from the insurance company. [Najah v. Scottsdale Insurance Company (September 30, 2014)_CA4th_]

Related topics:

Posted by Elizabeth T. Pardo | Apr 9, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 1

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

Facts: An owner purchased property located within the vicinity of an airport. Under the county’s specific and general plan, all owners within the specified zone were required to sign an overflight easement, acknowledging the vicinity of the airport and granting an overflight easement to the airport. The owner did not sign the overflight easement when purchasing the property. The previous owner constructed improvements without obtaining building permits. The county required the owner to bring the improvements up to code and obtain a permit prior to doing so. As a condition of issuing the permit, the county required the owner to sign the overflight easement agreement. The owner refused.

Claim: The owner sought to obtain the building permits without signing the easement, claiming the consent requirement  as a condition for obtaining a building permit is unconstitutional since it constitutes a taking without providing just compensation.

Counter claim: The county claimed the overflight easement did not constitute an unconstitutional taking since the easement was a uniform requirement of all property owners within that zone and was not imposed on the owner individually.

Holding: A California court of appeals held the overflight easement did not constitute a taking without just compensation since it was necessary a requirement applied to all owners of property within the airport zone. [Scott Powell v. County of Humboldt (January 21, 2014) _CA4^th_]

Related topics:
easements

Posted by ft Editorial Staff | Dec 4, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A buyer and seller enter into a purchase agreement for a property. The seller later refuses to close escrow. The buyer sues the seller for performance to enforce the sale and they enter into a settlement to complete the sale per the terms of the purchase agreement. The seller fails to comply with the settlement terms and refuses to sign escrow documents to complete the sale. The buyer subsequently applies for an order appointing the clerk of the court to execute the escrow documents on behalf of the seller and the trial court grants the order.

Claim: The seller claims the trial court does not have the authority to appoint a clerk of the court to execute the escrow documents on behalf of the seller.

Counter claim: The buyer claims the trial court has the authority to appoint a clerk to execute the sale since the seller failed to comply with the terms required by the settlement.

Holding: A California court of appeals held the clerk of the court may execute the escrow documents on behalf of the seller since a court is authorized to designate someone to enforce the terms of a valid settlement when a party fails to comply. [Blueberry Properties, LLC v. Chow (October 22, 2014)_CA4th_]

Related topics:

Posted by Elizabeth T. Pardo | Feb 6, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 2

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

Facts: A buyer employed a mortgage broker to obtain funds to purchase a single family residence to occupy as their home. The buyer dictated income information to the broker who completed the buyer’s mortgage application. The application, which contained incorrect income information, was submitted to a lender for funding by the broker. Based on the incorrect information, the lender funded two mortgages secured by a first and second trust deed totaling less than $150,000 on the property. The buyer defaulted on the first mortgage and the lender filed a notice of default (NOD) and foreclosed. The property was sold and the unsecured second mortgage was purchased by a creditor who discovered the incorrect income information on the buyer’s second mortgage.

Claim: The creditor sought to recover the amount of the second mortgage balance from the buyer, claiming the buyer was not protected by anti-deficiency legislation since the second mortgage was acquired by fraud as the buyer misrepresented their income.

Counter claim: The buyer claimed the second mortgage was still protected by  anti-deficiency legislation and exempt from the fraud claim since the funds were used to purchase an owner-occupied property and totaled less than $150,000.

Holding: A California bankruptcy court held the buyer was not liable for the balance of the second mortgage since the creditor’s exception to anti-deficiency statutes in the instance of fraud does not apply to single family, owner-occupied residential real estate where the mortgage  does not exceed $150,000. [In re Montano (February 25 2013) _BR_]

Editor’s note – See the Uniform Residential Loan Application (FNMA 1003). [See first tuesday Form 202] 

Related topics:
anti-deficiency, notice of default (nod), single family residence (sfr)

Posted by ft Editorial Staff | Oct 9, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 1

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

Facts:  The common property line between an owner’s parcel of land and their neighbor’s parcel is subject to the original land survey completed 150 years prior. Previous neighbors planted a row of trees as a privacy screen marking the approximate property line, but the exact boundary was never confirmed. Later, the owner discovers the current neighbor is using land located on the owner’s side of the tree line, which the neighbor believes is part of their land. The owner has their parcel surveyed to confirm the property line. The surveyor, unable to locate the eroded markers from the original survey, refers to retracements by subsequent surveyors along with the original survey to determine the probable locations of the markers. The surveyor concludes the trees are on the boundary line and, thus, the portion of land used by the neighbor is within the owner’s property line.

Claim: The owner seeks to quiet title to the portion of property used by the neighbor, claiming the land is within the owner’s property line since the surveyor reasonably determined the trees properly mark the boundary line by interpreting the marker locations described in the original and subsequent surveys.

Counter claim: The neighbor claims the owner’s survey is invalid and inaccurate since the surveyor did not sufficiently rely on the original survey or described markers to determine the property line.

Holding: A California court of appeals held the owner is entitled to the disputed portion of land since the owner’s surveyor sufficiently consulted the original land survey and subsequent surveys to reasonably determine the location of the described markers and property line, which is properly marked by the tree line. [Bloxham v. Saldinger (August 1, 2014)_CA4th_]

Related topics:

Posted by Elizabeth T. Pardo | Apr 22, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 1

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

Facts: An owner in a homeowners’ association (HOA) community became delinquent on HOA payments. After the HOA notified the homeowner of the delinquency and received no response, the HOA placed a lien on the owner’s property. Two weeks later, the HOA began foreclosure proceedings. After the foreclosure proceedings began, the owner requested a statement of sums due from the HOA. The owner proposed a payment plan to bring their payments current, which was accepted by the HOA. The owner tendered partial payments to the HOA in an amount inconsistent with the payment plan agreed to by the HOA. The HOA refused to accept the owner’s partial payments and resumed foreclosure proceedings.

Claim: The owner sought to avoid foreclosure, claiming the HOA must accept the partial payments since the payments were on-time in accordance with the proposed payment plan, although of a lesser amount.

Counter Claim: The HOA sought the previous balance paid in full, claiming the partial payments were not acceptable since the payments were less than the amount agreed upon by the HOA and the owner in the payment plan.

Holding: A California court of appeals held the HOA had to accept the partial payments of the owner since the owner was attempting to pay down the delinquency and the HOA used the lien and threat of foreclosure to bring about compliance from the owner. [Huntington Continental Town House Association, Inc. v. The JM Trust (January 21, 2014) _ CA4th_]

Editor’s note –This makes certain HOAs do not use foreclosure as their first remedy for payment of delinquent payments.

Related topics:
foreclosure, homeowners association (hoa), homeownership

Posted by Sarah Kolvas | Sep 17, 2014 | Investment, Laws and Regulations, Property Management, Real Estate, Recent Case Decisions | 1

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

Facts: A landlord enters into a month-to-month rental agreement with a tenant. After taking possession, the tenant discovers the property is in an uninhabitable condition and performs repairs, requesting reimbursement. The landlord does not provide reimbursement. When the next monthly payment is due, the tenant withholds the cost of the repairs from their rental fees. The tenant also reports the property’s condition to the city and, after an inspection, the city issues a code enforcement letter to the landlord.

In response, the landlord serves the tenant at mid-month with a three-day notice to pay rent or quit for the withheld rental fees concurrent with a 30-day notice to vacate to terminate the periodic tenancy. The tenant tenders payment of the withheld rental fees due under the three-day notice, bringing the rent current, and disregards the 30-day notice to vacate.

At the beginning of the next month, the tenant attempts to make a full rental payment for the subsequent month. The landlord refuses payment and serves the tenant with a second three-day notice to pay rent or quit, demanding rental fees for only the half month of tenancy remaining under the belief the 30-day notice had terminated the tenancy at mid-month. The tenant does not pay the requested fee and remains in possession.

Claim: The landlord seeks possession of the property through an unlawful detainer (UD) action, claiming the tenant’s right to possession was terminated since the landlord served the tenant with a three-day notice to pay rent or quit for half of the last month’s rent and the tenant remained in possession without paying the requested amount.

Counter claim: The tenant claims the landlord is not entitled to possession since the tenant paid all amounts due and the landlord rejected the payment in retaliation, thus the landlord cannot use nonpayment as the basis for a UD action.

Holding: A California Superior Court held the landlord was not entitled to evict the tenant through a UD action since the tenant timely paid all amounts due the landlord and the landlord’s eviction efforts were retaliatory. [Boyd v. Carter (June 9, 2014)_CA4th_]

Editor’s note — Additional issues are present in this case but were not explicitly ruled upon by the court, such as the landlord’s breach of the warranty of habitability.

Here, the court held a landlord’s conduct is a critical factor in a UD action and needs to be considered when a landlord seeks possession from a tenant. In this case, the landlord failed to maintain the property in a habitable condition, prompting the tenant to request an inspection from the city. The landlord was sent a code enforcement letter and subsequently served the tenant with a 30-day notice to vacate.

The court determined a landlord’s breach of the warranty of habitability bars them from collecting rental fees or reclaiming possession of the property from a breaching tenant since the landlord failed to fulfill duties owed the tenant.

Additionally, the landlord attempted to evict the tenant in retaliation after the tenant reported the property’s condition to the city, interfering with the tenant’s right to report uninhabitable conditions on the property.

Thus, even if the tenant in this case was in default on their rental payments, the landlord’s conduct and breach would have likely barred them from obtaining possession and payment from the tenant.

For an in-depth discussion about the concepts discussed in this case, see Volume 4 of the first tuesday Realtipedia, Real Estate Property Management (Chapter 26: Three day notices to quit; Chapter 29: Notices to vacate; Chapter 34: Retaliatory eviction defense; and Chapter 37: Implied warranty of habitability). [See first tuesday Form 569, 575 and 575-1]

Related topics:

Posted by Sarah Kolvas | Nov 24, 2014 | 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 rents a unit in a multi-unit residential property subject to local rent control. A new landlord later purchases the property, converts it to condominiums and obtains a new certificate of occupancy based on the change in use. The new landlord serves the tenant with a 60-day notice of change in terms of tenancy and increases the tenant’s rent. The tenant refuses to pay the increased rent.

Claim: The landlord seeks to enforce the rent increase, claiming the tenant’s unit is now exempt from rent control since the landlord obtained a new certificate of occupancy for a change in use after the specified date for exemptions under California law.

Counter claim: The tenant claims the rent increase is unenforceable since the exemption from rent control does not apply to the tenant’s unit as the exemption is only applicable to a unit originally certified for residential use after the specified date for exemptions and the tenant’s unit was originally issued a certificate of occupancy for residential use prior to the exemption date.

Holding: A California court of appeals held the rent increase is prohibited since the tenant’s unit is not exempt from rent control as the exemption only applies to a unit for which its original certificate of occupancy for residential use was issued after the specified date for exemptions under California law and the tenant’s unit was already certified for residential use prior to the specified date for exemptions. [Burien, LLC v. Wiley (October 22, 2014)_CA4th_]

Related topics:

Posted by Elizabeth T. Pardo | Feb 26, 2014 | 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 filed for chapter 7 bankruptcy protection as the property was contaminated by hazardous waste and nonoperational. An automatic stay was placed on the property for the duration of the owner’s bankruptcy. A trustee was appointed by the court to liquidate the owner’s assets under the bankruptcy. The trustee abandoned the contaminated property as no funds were available to rehabilitate it and a lender holding a first trust deed on the property foreclosed on its interest during the bankruptcy proceedings.

Claim: The lender claimed the foreclosure was necessary since there were no funds available to render the property operable as the property was contaminated with hazardous waste.

Counter claim: The owner sought to retroactively invalidate the foreclosure, claiming the lender improperly foreclosed since the automatic stay was in effect through the duration of the owner’s bankruptcy.

Holding: A bankruptcy appeals court held the foreclosure was invalid since the owner’s stay protected the property under the owner’s bankruptcy declaration throughout the bankruptcy proceedings, regardless of the trustee’s abandonment of the property. [In re Gasprom, Inc. (February 25 2013) _BR_]

Related topics:
bankruptcy, commercial property, foreclosure, lender

Posted by ft Editorial Staff | Dec 22, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 1

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

Facts: An owner defaults on a note secured by a trust deed on their property. The property is sold at a trustee’s sale and all foreclosure documents are recorded with the county. The lender files an unlawful detainer (UD) action to evict the owner and, after entry for judgment of possession, the county enforces the writ of possession to evict the owner. The owner later alleges the recorded documents were fraudulent.

Claim: The owner seeks to void the eviction, claiming the county wrongfully enforced eviction since the eviction was based on the county’s unlawful recording of fraudulent foreclosure documents.

Counter claim: The county claims it did not unlawfully record foreclosure documents or wrongfully enforce eviction since the county is mandated to follow court orders and is not required to determine whether recorded documents are fraudulent.

Holding: A California court of appeals held the county did not unlawfully record foreclosure documents or wrongfully evict the owner since the county is required by law to record all documents and enforce a court order for eviction, and does not have a duty to conduct a fraud investigation.  [Lyons v. Santa Barbara County Sheriff’s Office (December 3, 2014)_CA4th_]

Related topics:

Posted by Sarah Kolvas | Sep 15, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions, Tax | 0

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

Facts: An owner’s property is taken by eminent domain. Three years later, the owner purchases a replacement property and pays property taxes based on the current fair market value of the property. More than four years after the first property was taken by eminent domain, the owner files a claim with the county to have the condemned property’s base year value transferred to the replacement property as provided under Proposition 13. The county denies the request since it was not submitted within four years from the date the first property was taken by eminent domain, as required by California property tax law.

Claim: The owner seeks a property tax refund, claiming the time limitation for transferring the base year value of property taken by eminent domain is unconstitutional since the purchase of eminent domain replacement property is excluded from reassessment under Proposition 13 as part of the just compensation entitled to a property owner for eminent domain seizure.

Counter claim: The county claims it is not required to approve the property owner’s request since the legislature may impose reasonable time restraints on constitutional rights and the time limitation is reasonable under Proposition 13.

Holding: A California court of appeals held the owner is entitled to a tax refund since, though the owner did not submit the claim in the four-year time period, they acquired the replacement property within the four-year time period and enforcement of the time limitation on the owner’s claim is contrary to the intent of Proposition 13’s reassessment exclusion to further ensure just compensation to an owner whose property is taken by eminent domain, as provided for under eminent domain law. [Olive Lane Industrial Park, LLC v. County of San Diego (July 18, 2014)_CA4th_]

Related topics:
eminent domain, property tax

Posted by Sarah Kolvas | Sep 4, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 2

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

Facts: A homeowner obtains a mortgage from a lender secured by a trust deed on the property. The lender later assigns the trust deed to a successor lender via a pooling and servicing agreement. The successor lender then substitutes the trustee. The homeowner defaults on the mortgage and the substituted trustee records a notice of default (NOD). The owner fails to cure the default and the property is sold at a trustee’s sale.

Claim: The homeowner seeks to void the trustee’s sale and quiet title to the property, claiming the successor lender wrongfully foreclosed since the trust deed was improperly assigned and, thus, the successor lender did not have the authority to foreclose.

Counter claim: The successor lender claims the foreclosure is valid since the details of the assignment were immaterial to the homeowner’s obligations as a borrower and the homeowner’s failure to cure the default left them without standing to quiet title.

Holding: A California court of appeals upheld the foreclosure since details of the assignment were immaterial to the homeowner as a third party to the assignment and did not alter the homeowner’s obligations to cure the default, leaving them with no standing to contest the foreclosure or clear title via a quiet title action.[Mendoza v. JPMorgan Chase Bank (July 2, 2014)_CA4th_]

Editor’s note — The California Supreme Court has recently taken up a similar issue with Yvanova v. New Century Mortgage Corp. and will conduct a new analysis of a borrower’s standing to challenge a lender’s assignment of their trust deed under a pooling and servicing agreement after the successor lender foreclosures on the defaulting borrower’s property. [See the September 2014 first tuesday Suprmee Court Watch]

Related topics:

Posted by Matthew Taylor | Nov 21, 2014 | Finance, Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: An owner of property obtained a mortgage from a lender who later assigned the mortgage by transferring it to a mortgage-backed investment trust under a pooling and servicing agreement (PSA) with a mortgage holder. State law where the trust was based required mortgages to be transferred into the trust before the trust’s closing date. The transfer of the owner’s mortgage to the trust did not occur until after the closing date. The owner defaulted on the mortgage and the mortgage holder recorded a Notice of Default (NOD), and later a Notice of Trustee’s Sale (NOTS).

Claim: The owner sought to quiet title and stop the foreclosure process, claiming the new mortgage holder had no right, title, or interest in the property since the transfer of the mortgage to the investment trust occurred after the trust closed in violation of the governing state’s law and thus was improper and void.

Counterclaim: The mortgage holder sought to complete the foreclosure and proceed with the trustee’s sale, claiming that the post-closure assignment of the mortgage to the investment trust rendered the transfer voidable, rather than void, and the property owner had no standing to challenge the validity of the assignment since the owner was not a party to the transfer.

Holding: A California Appeals Court held that the mortgage holder may complete the foreclosure and proceed to the trustee’s sale, since the property owner was not a party to the transfer, and the owner remained obligated by the mortgage regardless of the assignment’s validity. [Kan v. Guild Mortgage Co. (2014) 230 CA4th 736]

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

Posted by Matthew Shade | Jan 22, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: An owner’s property was subject to several trust deeds. The owner refinanced, consolidating some of the loans into a new loan made by a new lender, secured by a new trust deed. In addition, the owner partially paid off another existing loan secured by an existing trust deed on the property. In exchange for the partial payoff, the existing lender entered into a subordination agreement with the new lender to subordinate its existing trust deed to only the new loan secured by the new trust deed. After the subordination agreement was recorded, the new lender recorded the new trust deed, which secured the new loan and two other loans. Later, the owner defaulted on the new loan and was unable to cure the default by paying off all three loans secured by the new trust deed. The new lender began foreclosure. At the trustee’s sale, the new lender made a bid in the amount of the new loan to acquire the property, thus extinguishing the existing lender’s lien.

Claim: The existing lender sought to enforce the existing trust deed as the senior lien, claiming the new lender voided the subordination agreement by using the new trust deed to secure two additional loans, improperly increasing the debt with priority over the existing lender’s trust deed.

Counterclaim: The new lender claimed the subordinated trust deed was extinguished by the trustee’s sale since the two additional loans did not have priority over the existing lender’s trust deed, and the new loan, not the two additional loans, was the subject of the foreclosure.

Holding: A California court of appeals held the existing lender’s subordinated trust deed was extinguished by the trustee’s sale since the two additional loans did not have priority over the existing lender’s trust deed, and the new loan, not the two additional loans, was the subject of the foreclosure. [R.E. Loans, LLC v. Investors Warranty of America, Inc. (2013) 212 CA4th 1432]

Editor’s note – One trust deed may secure multiple debts without altering the priority of the separate debts. In this case, the existing lender equated the owner’s duty to pay off the “cross-defaulting” notes to cure the default to mean all three loans were senior to its existing trust deed. The existing lender’s failure to identify the correct priority of the debts cost it the case, attorney’s fees and the chance to protect its interest by bidding at the trustee’s sale for the amount of the new loan – the only loan senior to its existing trust deed. 

 

Related reading:

first tuesday Realtipedia, Volume 5 Real Estate Finance, Chapter 4 “The promissory note”

Related topics:
trust deed

Posted by Sarah Kolvas | Feb 6, 2014 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A property owner was granted an appurtenant easement over their neighbor’s property. The deed which granted the easement did not state the precise boundaries of the easement. For numerous years, the owner limited their use to only one section of the easement. The remainder of the easement was used solely by the neighbor and subsequent neighbors who owned the burdened property. The owner later began to expand their use of the easement, encroaching on the section used by a subsequent neighbor.

Claim: The subsequent neighbor sought to prevent the owner’s expanded use of the easement, claiming the owner was not entitled to areas of the easement beyond their historic use since the owner had established the boundaries of the easement through their continued use of only one section.

Counter claim: The owner claimed they were entitled to the full easement since the deed granting the easement did not specifically define the boundaries of the easement.

Holding: A California court of appeals held the owner was not entitled to expand their use of the easement since the boundaries of the easement and the extent of the owner’s use were established by their historic use of the easement. [Rye v. Tahoe Truckee Sierra Disposal Company, Inc. (December 18, 2013)_CA4th_]

 

Editor’s note – For a further discussion of easements, see first tuesday Legal Aspects (Chapter 20: Easements: running or personal and Chapter 22: Interference and termination of easements).

Related topics:
easements

Posted by ft Editorial Staff | Aug 7, 2014 | Laws and Regulations, New Laws, Real Estate | 0

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

Business and Professions Code §17533.6
Amended by S.B. 272
Effective date: January 1, 2014

A nongovernmental entity, including a real estate brokerage, may not use any seal, emblem, insignia, symbol, trade or brand name, term or content in advertisements which may imply a connection to or approval by any government or military organization for products and services it offers unless the nongovernmental entity:

• has an expressed connection to or approval from a government agency; OR
• displays the following disclosure conspicuously on all advertisements, including television commercials:

“THIS PRODUCT OR SERVICE HAS NOT BEEN APPROVED OR ENDORSED BY ANY GOVERNMENTAL AGENCY, AND THIS OFFER IS NOT BEING MADE BY AN AGENCY OF THE GOVERNMENT.”

If mailed, the envelope is to state:

“THIS IS NOT A GOVERNMENT DOCUMENT.”

Related topics:

Posted by Sarah Kolvas | Dec 26, 2014 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Health and Safety Code §§17921.5 and 18940
Added by A.B. 2282
Effective date: January 1, 2015

The California Department of Housing and Community Development is developing mandatory building standards for the installation of recycled water systems in newly constructed:

• single family residences;
• multifamily residential buildings;
• commercial buildings; and
• public buildings.

The proposed mandatory building standards will be considered during the 2016 review of California building codes.

Recycled water is water that has been treated and is suitable for potable and non-potables use, making it a valuable resource.

Aspects to be considered in the development of the recycled water system mandates are:

• potential outdoor and indoor applications for recycled water;
• the cost of various recycled water systems; and
• the estimated amount of water savings.

The mandatory building standards are not applicable or may be reduced in areas without feasible and cost-efficient access to a water recycling facility.

Editor’s note — These proposed building standards will be adopted in mid-2017 as part of the 2019 building code to further the state’s goal of a 20% reduction in per capita water usage by 2020. Currently, 51 out of 58 counties recycle or have plans to recycle municipal wastewater, yet no statewide building standards exist to ensure installation of recycled water infrastructure. Thus, the application of these building standards is expected to reach a large portion of the state.

Read more:

Read the bill text.

Related topics:

Posted by ft Editorial Staff | Sep 15, 2014 | Laws and Regulations, Licensing and Education, New Laws, Real Estate, Your Practice | 0

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

Calif. Financial Code §§22109.2, 22109.3, 22109.5, 50142, 50143 and 50145
Amended by S.B. 1459
Effective date: January 1, 2015

Applicants for mortgage loan origination licenses issued by the Department of Business Oversight (DBO) are now required to complete two hours of California-specific education as part of their 20-hour pre-licensing requirements.

Mortgage loan originators already licensed by the DBO are now also required to complete one hour of California-specific education as part of their 8-hour continuing education requirement.

This does not apply to mortgage loan origination license endorsements issued by the California Bureau of Real Estate (CalBRE).

Related topics:

Posted by Sarah Kolvas | Oct 21, 2014 | Laws and Regulations, New Laws, Property Management, Real Estate | 1

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

Calif. Code of Civil Procedure §§527.11 and 527.12 
Added by A.B. 1513
Effective date: January 1, 2015

To arrange timely removal of squatters, owners of unoccupied one-to-four unit residential properties in Palmdale, Lancaster and Ukiah may register their vacant properties with the local law enforcement within three days after the property becomes vacant. The registration is to include:

• a statement signed under penalty of perjury that the property is vacant and not authorized to be occupied by any person;
• the name, address and telephone number at which the owner may be reached; and
• a statement and agreement evidencing local law enforcement or a private security company have been retained to inspect the property at least once every three days and notify law enforcement of any unauthorized person on the property.

Law enforcement notified about a person residing in the property will determine if the person is authorized to be on the premises. Unauthorized occupants are to be informed they may be removed by court order, and are subject to arrest for trespass if they violate the order.

A property owner may personally serve an action against an unauthorized occupant, or post a copy of the summons and complaint on the property, and mail a copy to the same address. The court may order a temporary restraining order within three days of serving the complaint and require the property to be vacated within 48 hours.

If the property is later sold or rented to a tenant, the owner is to:

• issue to the tenant a written authorization to occupy the property; and
• notify the local law enforcement to terminate the registration.

Owners of unoccupied one-to-four unit residential properties in Palmdale, Lancaster and Ukiah may also file a Declaration of Ownership with local law enforcement. The declaration includes an affirmation of their sole ownership of the unoccupied property and a statement that no person is authorized to occupy the property.

An owner who provides false information on declaration is liable to any person caused to vacate the property for attorney’s fees, special damages not to exceed $2,000 and other damages.

These processes sunset on January 1, 2018.

Editor’s note — Property owners are not required to take action in accordance with these provisions to remove a squatter from their property – these are merely additional methods available as part of a pilot program to simplify the process. Registering the property ensures local law enforcement are able to monitor the property and effectively remove any unauthorized occupant. Filing and posting a Declaration of Ownership further allows the property owner to affirm their sole ownership to streamline the court order process.

Though these provisions only apply to particular cities in California, they indicate the state’s willingness to take action against squatting if it is deemed a widespread problem for property owners. Similar amendments on a broader scale may reasonably result from these pilot provisions, with the potential to impact a larger number of property owners in the state.

Related topics:

Posted by Sarah Kolvas | Oct 14, 2014 | Finance, Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Civil Code §§2944.7, 2944.8 and 2944.10
Added and amended by A.B. 1730
Effective date: January 1, 2015

Any person who, for compensation, negotiates, arranges or offers to perform a loan modification or forbearance on a mortgage secured by a one-to-four unit residence may not:

• claim, demand, charge or collect any compensation until after they have fully performed all services they are contracted for;
• take a wage assignment, lien on real property or other security to secure payment; or
• take any power of attorney from the borrower.

A person who violates these prohibitions is now subject to additional civil penalties of up to $20,000 per violation, to be assessed through a civil action brought by the state or local government.

If the victim is a senior citizen (aged 65 or older) or a disabled person, the violator may be subject to an additional civil penalty of up to $2,500 per violation, to be assessed through a civil action brought by the state or local government. Assessment of this additional penalty depends on whether:

• the violator knew their conduct was directed at a senior citizen or disabled person;
• the violation caused the victim to suffer the loss of their primary residence, retirement property, payments from a pension or retirement plan, employment, source of income or assets essential to the victim’s health; and
• the victim is substantially more vulnerable than other members of the public and suffered significant physical, emotional or economic harm due to age, poor health, impaired understanding or restricted mobility.

A senior citizen or disabled person who has suffered damages may be restored money or property lost as a result of the violation.

The statute of limitations for bringing an action to enforce these provisions is four years from the violation.

Related topics:

Posted by Sarah Kolvas | Oct 21, 2014 | Laws and Regulations, New Laws, Property Management, Real Estate | 0

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

Calif. Civil Code §§3486 and 3486.5
Added and amended by A.B. 2485
Effective date: September 15, 2014

As part of an expanded pilot program, city attorneys in the cities of Sacramento or Oakland may file an unlawful detainer (UD) action against a tenant for nuisance for the unlawful sale of controlled substances on a rental property.

Upon receiving a 30-day written notice from the city attorney of the pending UD action, the property owner is required to provide information relating to the nuisance, and assign to the city attorney their right to pursue the UD. The property owner is only responsible for paying legal costs once the assignment is accepted and filed by the city attorney.

Additionally, the city attorney is required to provide the California Research Bureau with data related to UD actions brought under these provisions to allow the state to evaluate the effectiveness of the pilot program.

This pilot program sunsets on January 1, 2019.

Editor’s note — Though this law only applies to a total of three cities (Los Angeles was the flagship city), it has potential for broader application if the state finds the pilot program to be successful.

Related topics:
unlawful detainer (ud)

Posted by ft Editorial Staff | Aug 26, 2014 | Forms, Mortgages, New Laws, Real Estate | 1

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

Postponement of trustee’s sale to be provided in writing

Civil Code §2924
Amended by A.B. 1599
Effective date: January 1, 2013

In connection with one-to-four unit residential properties, a trustee who postpones a trustee’s sale for ten days or longer is required to provided written notice of the postponement to the defaulting owner within five business days following the postponement. The postponement notice is to include the new sale date and time. The trustee delivering the postponement notice is still required to publicly declare the postponement at the time and place the sale was to have taken place prior to the postponement. This requirement sunsets on December 31, 2017. [See first tuesday Form 474-8]

 

 

Related topics:
notice of trustees sale, trustees sale

Posted by ft Editorial Staff | Oct 28, 2014 | Feature Articles, Finance, Laws and Regulations, Real Estate | 0

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

The privilege of becoming debt-free when able

A buyer negotiating to acquire a parcel of real estate generally needs additional capital to pay the purchase price. The capital will be raised through mortgage financing. A note will be prepared and signed to evidence the debt created.

As with any arrangement for debt, provisions in the note set out a payment schedule for the return of principal, typically through amortized reduction of the mortgage balance and final payoff.

The note’s payment schedule provision contains an “or more” clause. The “or more” wording allows for payment of unscheduled principal reductions by the buyer – unless otherwise restricted in provisions added to the boilerplate copy of the note. [See first tuesday Form 420 §2]

The buyer may deleverage by voluntarily reducing principal using the “or more” wording, either periodically or in one payment. Here, the mortgage holder may not force an increase in principal reduction by a call so long as the buyer:

• pays no less than the scheduled payments; and
• does not trigger an incurable breach.

Managing the premature receipt of principal

On the flip side of the buyer’s use of the “or more” clause is the mortgage holder’s various desires not to have the principal prepaid.

Two methods exist for meeting this objective:

• the removal of the “or more” clause from the payment schedule provision; or
• the inclusion of a prepayment penalty provision to recover costs and losses due to any principal reduction beyond the scheduled payments.

To strike and remove the “or more” clause from the note locks in the buyer to paying only the principal as scheduled. Without an “or more” clause, the buyer is barred from voluntarily prepaying any portion of the principal other than by the installments set in the note’s payment schedule. As a result, the owner’s inability to pay off mortgage debt becomes a restraint on their ability to sell or further encumber their property.

Thus, the mortgage holder’s most practical method for managing their premature receipt of principal is to include provisions for a charge on a prepayment of extra principal. The amount of the charge is based on the amount of principal prepaid, and continues for a sufficient number of years to justify originating the mortgage. Such an arrangement is called a prepayment penalty provision.

When preparing a note and trust deed to document a mortgage, the prepayment penalty provision is included in the note. The provision is not included in a trust deed since a trust deed is a security device and relates to the care, maintenance and foreclosure of the mortgaged property, not the terms of the debt.

Debt reduction: deleveraging inhibited

The unscheduled prepayment of any mortgage principal before it is due is ironically considered a privilege.  When an owner of a mortgaged property is able to deleverage by paying off the mortgage holder early, they typically need to pay a premium to become debt free.

When a prepayment penalty provision exists in the note, the mortgage holder is able to charge the owner on each exercise of the principal reduction privilege, whether the reduction is a portion or all of the  remaining principal balance on the debt.  [See first tuesday Form 418-2]

Historically, lenders and mortgage holders used prepayment penalties to prevent the loss of interest income until the funds were re-lent to another borrower. That is no longer the reason for a loss caused by a premature principal reduction.

Economic reality

Over the years, California courts have embraced a number of rationales which support mortgage holder enforcement of the prepayment penalty. However, for each justification offered by mortgage holders in support of prepayment penalties, a counter-argument exists:

1. Administrative costs: The net costs and the loss of profit a mortgage holder incurs on the unscheduled reduction of principal.Penalties allow mortgage holders to recoup costs they will incur when making new mortgages with prepaid funds up-front. Income such as mortgage origination fees and charges always offset costs incurred to re-lend principal to fund new mortgages. [Hellbaum v. Lytton Savings and Loan Association (1969) 274 CA2d 456]

2. Lag time: The loss of interest income due to money sitting idle between payoff and re-lending.Cash on hand does not sit idle in today’s lending institutions. Prepaid funds are promptly re-invested in short-term securities until placed again in long-term mortgages. [Lazzareschi Investment Company v. San Francisco Federal Savings and Loan Association (1971) 22 CA3d 303]

3. Mortgage holder profitability: Use of the prepayment penalty as a mortgage portfolio yield maintenance device.When mortgage holders call or modify mortgages on the transfer of the mortgaged property using the due-on clause, they do so only because they can re-lend the money at higher rates.They welcome the prepayment of fixed rate mortgages (FRMs) in markets of rising interest rates (as we will experience for decades after 2015), when it higher rates increase mortgage holders’ portfolio yield boosts profitability. Thus, the prepayment penalty charge becomes bonus windfall earnings.
   It is argued mortgage holders have the right to collect prepayment penalties in a declining interest rate market. However, this argument is inapplicable when interest rates are rising, as will occur well into the 2030s. However, prepayment penalty provisions are in both scenarios, an asymmetric application of their purpose. If penalties are justified at all, it is only during periods of falling interest rates.  [Lazzareschi Investment Company, supra]

4. Mortgage holder expectations: Disruption of a mortgage holder’s commitment to a long-term placement of funds.Mortgage holders expect mortgages to be paid prior to maturity. Mortgage holders consider the risk of prepayment when setting interest rates or assessing the value of a mortgage portfolio, especially for servicing agreements. The industry-standard long-term projection shows the average mortgage prepays by its twelfth year.
   In California in the 1990s, the average was a mere five years due to several periods of increased mortgage refinancing as rates constantly declined. That low average was seen again in the mid-2000s as home values soared and refinancing conditions converted real estate equities into proverbial ATMs.
   Such turnover generates profits from mortgage origination fees, points and interest rate adjustments. It is reasonable to assume prudent mortgage holders base their annual profit projections on portfolio turnover.Further, with the predominant secondary mortgage market, many mortgage lenders pool and sell their mortgages to other mortgage holders on an advantageous change in interest rates. They generally do not own mortgages with the intent of obtaining long-term income; rather, they service them for that income and not the occasional prepayment penalty revenue.  [Lazzareschi Investment Company, supra]

5. Loss due to declining market rates: Income lost due to prepaid funds being re-lent at lower interest rates than originally bargained with the borrower.For the declining market argument to succeed, penalties are appropriate only when market rates drop below that of the prepaid mortgage, and only when the various front-end charges, points accruing over the life of the mortgage and the mortgage holder’s cost of funds at the time of the prepayment are also taken into consideration. [Sacramento Savings and Loan Association v. Superior Court (1982) 137 CA3d 142]

Disclosure — Fred Crane, first tuesday’s Legal Editor, was the attorney of record on Sacramento Savings and Loan Association v. Superior Court.

Thus, in all but the rarest situations — such as a catastrophic fall in long-term interest rates without an immediate corresponding decrease in the cost of funds — mortgage holders are unable to show they experience losses due to an early payoff.

Consumer mortgages and diminishing returns

Prepayment penalties were a popular tactic mortgage holders used in the Millennium Boom era to lock inexperienced owners into dangerously expensive mortgages. Inadequate disclosures left many owners unaware of the potential for their interest rates and payments to increase dramatically.

When deceptively low teaser rates expired or negative amortization swelled their principal balance, owners found themselves trapped in mortgages they were never able to afford to begin with. Prepayment penalties only increased an owner’s inability to refinance into a more reasonable arrangement. Defaults and foreclosures exploded in 2007, setting the cascade of the financial crisis in motion.

In response to those abuses and the resulting toxic economic ripple effect of the 2008 Financial Crisis and ensuing Great Recession, prepayment penalties on consumer mortgages were re-regulated in 2010, along with enhanced disclosure requirements and other consumer protections added to an expanded Reg Z.

Editor’s note—A consumer mortgage is a residential real estate loan which funds a personal, household or family use.

Related article: Ability-to-repay, qualified mortgage and qualified residential mortgage, oh my!

Reg Z sharply curbs the use of prepayment penalties for consumer mortgages, limiting the charge amount during the first three years of the mortgage, which is reviewed in detail below.

As for business mortgages (all mortgages not serving a consumer purpose), prepayment penalty and lock-in negotiations are not controlled by Reg Z. Further, business mortgage originations are considered arms-length transactions arising out of relatively equal bargaining positions. Thus, prepayment provisions in business mortgages are not currently subject to legislation or regulation—just judicial review for unreasonable charges.

New controls for consumer prepayment penalties

In the renewed regulatory era, prepayment penalties on consumer mortgages are now prohibited unless the mortgage is a qualified mortgage meeting Reg Z’s ability-to-repay rules (together, ATR-QM) and does not include the following terms:

• an adjustable rate of interest (an ARM); or
• an annual percentage rate (APR) greater than the average prime offer rate (published by the Consumer Financial Protection Bureau [CFPB]) for a comparable residential mortgage loan by:

o   1.5% on a first mortgage with a principal within conforming loan limits set by the Federal Home Loan Mortgage Corporation (Freddie Mac);

o   2.5% on a first mortgage with a principal above conforming loan limits set by Freddie Mac; and

o   3.5% on a second or other subordinate mortgage.

Editor’s note — As of 2014, Freddie Mac’s baseline limits for conforming loans were:
$417,000 for a single-family property;
$533,850 for a two-unit property;
$645,300 for a three-unit property; and
$801,950 for a four-unit property. [Freddie Mac Bulletin 2013-25]

Prepayment penalties are also prohibited for Section 32 high-cost consumer mortgages, which are consumer mortgages which exceed the average prime offer rate for similar mortgages by 6.5% for a first trust deed on a borrower’s primary residence with a principal amount exceeding $50,000. [12 CFR §§1026.43(g)(1); 1026.32(d)(6)]

Prepayment penalty on QMs

When a prepayment penalty is allowed on fixed rate consumer mortgages classified as QMs, the penalty period is limited to three years after origination.
Further, the amount of the prepayment penalty may not exceed:

• 3% of the outstanding balance during the 1st year;
• 2% of the outstanding balance during the 2nd year; and
• 1% of the outstanding balance during the 3rd year.

A mortgage lender who intends to include a prepayment penalty provision when offering to make a qualified fixed rate consumer mortgage is also required to offer a comparable, alternative mortgage arrangement without a prepayment penalty provision.

Thus, when a prepayment penalty is involved in a consumer mortgage it will be a QM with a fixed rate. The mortgage lender or mortgage loan originator (MLO) seeking a prepayment penalty needs to offer two comparable mortgages: one with the prepayment penalty, and one without. [12 CFR §1026.43(g)(3)]

Enforceable penalties for business and consumer carryback mortgages

Prepayment penalties are not permitted for consumer mortgages of any kind, unless they meet the fixed rate qualified mortgage (QM) definition.

This rule applies to all consumer carryback mortgages. If a carryback seller wishes to include a prepayment penalty provision in their consumer carryback mortgage the seller needs to comply with QM requirements, including verification of the buyer’s ability to repay, caps on points and fees, maximum debt-to-income ratio and more.

Business mortgages secured by owner-occupied, one-to-four unit residential property are required to permit prepayment of up to 20% of the original principal balance in any 12-month period without penalty. When more than 20% of the original amount of the note is prepaid in a 12-month period, the penalty on the excess is limited to six months’ advance interest at the note rate. [Calif. Civil Code §2954.9(b)]

For business mortgages not secured by owner-occupied, one-to-four unit residential property, a prepayment penalty is enforceable if the amount is reasonably related to money losses actually suffered by the mortgage holder on prepayment. Reasonably related money losses include the payment of profit taxes incurred by a carryback seller on a premature reduction in principal or final payoff. [Williams v. Fassler (1980) 110 CA3d 7]

Due-on clause and prepayment penalties

Prepayment penalty provisions in all mortgages containing a due-on clause secured by owner-occupied, one-to-four unit residential property are unenforceable if the mortgage holder:

• calls the mortgage due for a transfer in breach of the due-on clause;
• starts foreclosure to enforce a call under the due-on clause; or
• fails to approve an assumption of the mortgage during the pendency of a sale of the mortgaged property within 30 days of receipt of the qualified buyer’s completed credit application. [12 CFR §591.5(b)(2), (3)]

However, a seller carrying back a mortgage secured by a one-to-four unit residential property is only able to bar prepayment for the calendar year of the sale when they have not already carried back four or more such mortgages in the same calendar year. [CC §2954.9(a)(3)]

If the holder of a mortgage on one-to-four residential units intends to collect a prepayment penalty on a call triggered by a due-on clause, the owner needs to have agreed in a prepayment penalty provision that they waive their right to prepay without a penalty. [CC §2954.10]

Prepayment penalty due on a call

Consider a prepayment penalty clause in a mortgage that calls for a penalty payment on the voluntary or involuntary prepayment of the debt.

The property owner defaults on the mortgage. The mortgage holder records a Notice of Default (NOD), automatically calling the debt due. The owner tenders full payment of the debt excluding the prepayment penalty, which the mortgage holder refuses.

The property owner claims the prepayment penalty clause is only enforceable when the property owner voluntarily prepays the debt, not when the mortgage holder calls the debt due.

Is the prepayment penalty clause enforceable on a full payoff when the mortgage holder calls the debt due?

Yes! The clause permits the mortgage holder to demand a prepayment penalty on an involuntary prepayment resulting from the mortgage holder’s acceleration of the balance due on the debt. [Biancalana v. Fleming (1996) 45 CA4th 698]

Further, consider a property in foreclosure. The mortgage holder records a Notice of Trustee’s Sale (NOTS) which states the amount to pay off the loan includes:

• unpaid principal balance;
• accrued and unpaid interest;
• late charges;
• foreclosure costs (including attorney and trustee’s fees); plus
• a prepayment penalty.

At the trustee’s sale, is the mortgage holder able to demand and collect a prepayment penalty charge?

Yes! The mortgage holder’s right to collect a prepayment penalty is set by the provisions of the note, unless prohibited. Since the note provides for a prepayment charge when the loan is either voluntarily or involuntarily prepaid, the mortgage holder’s full credit bid at the trustee’s sale may include the prepayment penalty charge. [Golden Forest Properties, Inc. v. Columbia Savings and Loan Association (1988) 202 CA3d 193]

Conversely, when the mortgage limits a prepayment penalty to only voluntary payoffs, the mortgage holder is not permitted to include the penalty when the property is redeemed or bid on at the trustee’s sale. [Tan v. California Federal Savings and Loan Association. (1983) 140 CA3d 800]

Disclosure — Fred Crane, first tuesday’s Legal Editor, was the attorney of record on Tan v. California Federal Savings and Loan Association.

Tax advantages for the carryback seller

Consider a seller of real estate who is willing to carry back a mortgage for the portion of the purchase price remaining after a 20% down payment and the buyer’s takeover of the seller’s existing mortgage. The seller financing is classified as a business mortgage since the property sold is not a one-to-four unit residence or, if it is, will not be occupied by the buyer’s family or serve as the buyer’s vacation home.

The seller is aware the profit on the carryback note will not be taxed until principal is received or they assign it in a sale of the note or as collateral for other debt.

The seller’s remaining cost basis for the property is less than the balance of the mortgage on the property. Thus, the entire amount of the carryback note will be profit, subject to taxes as principal is paid, due to the seller’s mortgage-over-basis situation.

If the seller receives all cash, and thus is taxed on all profit in the year of the sale, they will pay a combination of federal and California state income tax of up to 33% (2014) on the profit depending on the seller’s income bracket.

If deposited in an interest-bearing account, the balance of the sale proceeds remaining after the payment of taxes will produce interest earnings on less than 66% of the net sales proceeds for the highest income bracket (the other 33% being disbursed to pay taxes).

However, with taxes deferred in an installment sale, the seller will earn interest at the carryback note rate on the full amount of the equity remaining unpaid after the down payment. Profit tax on the amount of “mortgage over basis” debt relief will need to be paid, unless covered by the seller carrying back an all-inclusive trust deed (AITD).

Thus, the seller is motivated to defer taxes on their profit until the carryback note is due. Meanwhile, the seller earns interest on the amount of the deferred profit tax they retain as principal in the carryback note.

A carryback seller’s compensation for an early payoff

Two alternatives exist for the carryback seller of a business mortgage to earn interest income on the portion of the sales price which will eventually be paid in profit taxes:

• lock the buyer into payments of no more than the scheduled installments by eliminating the “or more” provision in the note and to prevent early payoff of additional principal [See first tuesday Form 420 §2]; or
• include provisions for a prepayment penalty to be due on the payoff of any principal exceeding scheduled installments.

Consider a seller carrying back a business mortgage who selects the prepayment penalty alternative after their broker voices concern over the enforceability of a lock-in clause. Deletion of the “or more” clause prohibits principal reductions except under regular monthly payments and the final/balloon payment.

The seller wants to include a prepayment penalty of 25% to cover most of the taxes incurred on payoff.

For the carryback business mortgage, a reasonableness standard applies to any prepayment penalty. If the carryback business mortgage is secured by an owner-occupied, one-to-four unit residential property, any prepayment penalty is limited to six months’ advance interest on prepaid principal exceeding 20% of the original balance per calendar year.

Is the carryback business mortgage holder able to enforce a prepayment penalty in the amount of the estimated tax they will pay on their profit if the buyer prematurely pays additional principal?

Yes! A prepayment penalty on a carryback business mortgage is enforceable if the penalty amount is reasonably related to the seller’s anticipated money losses in the form of profit taxes on prepaid principal. Since the anticipated profit tax rate for an unscheduled principal reduction is 33% in the highest income bracket, a penalty in that or a lesser amount when principal is prepaid is reasonable. [Williams v. Fassler (1980) 110 CA3d 7]

QM prepayment penalties are limited to:

• 2% in the first two years following origination;
• 1% in the third year; and
• 0% thereafter. [12 CFR §1026.43(g)(2)]

Reasonableness of the penalty

The reasonableness of the carryback seller’s penalty amount is tested at the time the mortgage is entered into, not at the time of payoff. In the intervening years, interest and tax rates will likely go through major fluctuations, either up or down. [Williams, supra]

Although a prepayment penalty inhibits conveyancing and reconveyancing, it is considered a reasonable restraint on alienation and the owner’s use of the property’s title. [Sacramento Savings and Loan Association, supra]

An exorbitant or unconscionable penalty is unreasonable and thus unenforceable. [Hellbaum, supra]

Prepayment penalty triggered by late payments

Now consider the holder of a business mortgage encumbering real estate other than an owner-occupied, one-to-four unit residential property. The note contains a prepayment penalty provision calling for payment of six months unearned interest on any principal prepaid within six months after origination.

Further, the prepayment penalty is due on a principal prepayment after the first six-month period if any previous regularly scheduled payment was delinquent. The owner makes a regular payment after the grace period for its payment expired, resulting in a delinquency.

After the initial six months and before the final/balloon payment is due, the owner prepays the principal together with the prepayment penalty demanded by the mortgage holder. The owner later makes a demand on the mortgage holder for a return of the penalty payment, which the holder rejects.

The owner claims the prepayment penalty is an unenforceable liquidated damages penalty since it was triggered by a late payment of a regular installment, not an early payoff of the mortgage, and thus was unrelated to losses the mortgage holder incurred on prepayment of principal.

Is the business mortgage holder permitted to enforce a prepayment penalty on a final payoff which was triggered by a prior late payment of a monthly installment?

No! The prepayment provision here is structured to trigger payment of a penalty for having paid a regular installment late, not an early payoff of principal. Thus, the purported prepayment provision becomes an unenforceable liquidated damages provision since the charge bore no relation to the mortgage holder’s losses due to the prior late payment. [Ridgley v. Topa Thrift and Loan Association (1998) 17 C4th 970]

Related topics:
consumer mortgages, dodd-frank wall street reform and consumer protection act, qualified mortgage (qm)

Posted by Matthew Taylor | Mar 7, 2014 | Feature Articles, Fundamentals, Laws and Regulations, Real Estate, Your Practice | 1

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

The California Bureau of Real Estate (CalBRE) reports a surge in complaints from buyers suspicious their offers were not submitted to the seller for consideration. A recent CalBRE publication, dissected by first tuesday, highlights in great detail a licensee’s duty to promptly submit all offers to their principal. Period.

This article is Part II in a series of two. For more on the ins and outs of the agent’s duty to present reviewed in the CalBRE publication, see Part I, “Complaints prompt CalBRE to stress: present every offer.”

Prevent investigation: respond to all offers received

Consider the following hypothetical situation: You’re a seller’s agent, and a buyer’s agent has just submitted an offer you feel is not up to snuff for your seller. Maybe it’s too far beneath your seller’s asking price, or you perceive the buyer is financially unqualified; maybe it’s not on the type of form your broker insists on using; or maybe you sense it won’t pass muster with the short sale lender.

But, dutiful real estate professional that you are, you present it to your seller. As suspected, the seller isn’t interested. You store the purchase agreement form in your client file for this seller, as required, and carry on marketing the property. [See first tuesday Form 520 and 521; Stevens v. Hutton (1945) 71 CA2d 676]

Later, that buyer’s agent leaves you a voicemail inquiring about your seller’s disposition of their buyer’s offer. Since you are not duty-bound to respond to an offer to purchase and your seller flatly rejected the offer in no uncertain terms, the call goes unreturned. You are busy, after all.

Some weeks later, the California Bureau of Real Estate (CalBRE) notifies you they’ve received a complaint alleging you violated the Real Estate Law. The CalBRE investigator contacts you, asking you to turn over your recent transaction records, seeking proof you’ve fulfilled your fiduciary duty and presented all offers to your seller. [California Business & Professions Code §10148]

Are you able to prove it?

This is the situation a seller’s agent risks when offers to purchase go unacknowledged. Even though there was no wrongdoing in the situation described above, the seller’s agent still found themselves in the crosshairs of a CalBRE investigation in response to the rejected buyer’s complaint.

Handling a purchase offer: best practices

Even though it is not required, CalBRE recommends providing written acknowledgment of the submission of every offer. No surprise here. It’s a matter of sound practice to mitigate the risk of complaints with thorough (and documented) communication.

Better yet, written communication improves the public image of the brokerage community and the services offered.  It’s also a courtesy to all parties involved — including CalBRE, who will thank you for the swift disposition of an unnecessary investigation.

The buyer’s agent assists in fostering a habit of response in seller’s agents by insisting on it. If the seller is not going to accept the buyer’s offer, urge the seller’s agent to have the seller sign either a counteroffer or formal rejection and return it.

A rejection of an offer best occurs by:

• returning a signed, written rejection stating no counteroffer will be forthcoming [See first tuesday Form 150; Rejection of Offer, page five]; or
• preparing and submitting a counteroffer, using either a counteroffer form or another purchase agreement on different terms. [See first tuesday Form 180 and 150]

Related article:

Brokerage reminder: keeping offers secret a BRE violation

For CalBRE auditing purposes, a copy of any document handled in a transaction needs to be kept for a minimum of three years. This includes all offers to purchase a seller’s agent receives, even if the seller did not accept or respond to them. Get the seller to initial the offer as a rejection and put it in the client’s property file. Remember, the three-year record retention is required by law. [Calif. Bus & PC §10148]

Documents are easily scanned and stored electronically on hard storage discs or drives. Thus, space and expense are not excuses, and an agent has time to comply with best practices.

Further, it’s prudent practice to maintain an activity log in a file opened for every seller and buyer, noting all phone calls, emails and documents received and the disposition of each. You will ultimately reach better results when you take time to reflect on what has just transpired and summarize the activity with a brief entry in the file. [See first tuesday Form 520]

Related article:

Brokerage reminder: closed file storage tips for 2014

Upon notification from the CalBRE, these transaction records are to be surrendered to investigators for inspection and photocopying in the course of an investigation. If you’ve fulfilled your obligations and dutifully presented all offers to your seller, handing copies of your records to the CalBRE satisfies your burden of proof then and there. End of story.

The buyer’s agent takes action on lack of response

If you represent a buyer and suspect their offer has not been submitted to a seller, several channels for action are available. [Calif. Bus & PC §10176(g)]

First, insist the seller and their agent respond to the offer with a written rejection or formal counteroffer. We’ve covered both of those above, but remember: the seller is by no means compelled to do this.

However, when a seller’s agent outright refuses to submit an offer you have handed to them, or refuses to communicate the seller’s disposition of the offer for whatever reason, confirm this discussion in writing by mail or email. That way, as the buyer’s agent, you have proof you submitted the offer to the seller’s agent and your business record entry reflects the seller’s agent’s refusal to process the offer.

If you still strongly suspect a seller’s agent is not submitting an offer to their seller after you have communicated your concerns, file a formal CalBRE complaint on behalf of your buyer. This is accomplished by completing CalBRE’s Licensee/Subdivider Complaint Form, or by using the new Enforcement Online Complaint System (EOCS). [See CalBRE Form 519]

Related article:

BRE debuts its online complaint submission system

Summarize the concerns for your buyer with the following guidelines in mind:

• start from the beginning and de­scribe the events as they occurred;
• be specific about what was said and who said it;
• state who was present during these conversations or acts; and
• explain when and where these conversations/acts took place.

Attach photocopies or upload scans of all available documentation. This is especially important to CalBRE’s process for evaluating the legitimacy of complaints and determining whether to begin an investigation. These documents include:

• MLS listings;
• purchase offers;
• counteroffers and rejections;
• written correspondence; and
• transaction logs and activity files.

Related reading:

CalBRE Enforcement Online Complaint System

Be aware that, although CalBRE evaluates every complaint received, not all are deemed actionable and thus an investigation is not guaranteed.

The investigative and disciplinary process

If CalBRE determines an investigation is in order, investigators take action as quickly as within 24 hours, depending on potential risk to the public. High-priority cases involve ongoing perils to the public, such as allegations of:

• embezzlement; or
• fraudulent brokerage schemes.

Complaints for failure to present offers are less urgent and response times are longer depending on investigative caseloads, up to six months.

A CalBRE investigator is assigned to every complaint which becomes a case, serving as the point of contact for the filer. Investigators review complaints and, if necessary:

• request additional documentary evidence;
• inspect documents; and
• take statements from involved parties.

If investigators determine the subject of the complaint has violated real estate law, CalBRE’s legal department files an Accusation describing the facts and basis for action with the California Office of Administrative Hearings (OAH). The accused licensee has the opportunity to respond with a Notice of Defense, after which the case proceeds to a hearing before an OAH Administrative Law Judge (ALJ).

If the accused licensee does not respond with a Notice of Defense, the Real Estate Commissioner (Commissioner) evaluates the circumstances of the case and files a Default Decision and determines disciplinary action to be taken.

If the licensee does intend to defend themselves at hearing, CalBRE has the burden of proving the charges brought before the ALJ. Once the arguments have been made and the evidence examined, the ALJ sends a proposed ruling to the Commissioner for final decision.

The Commissioner can adopt or reject and reduce the proposed disciplinary action submitted by the ALJ. If the Commissioner wishes to enhance the ALJ’s proposed consequences, they are required to personally review the facts before issuing their Decision After Rejection.

Disciplinary actions handed down to licensees are weighted based on the facts of the case and the harm to the client or any other party involved in the complaint. Penalties range from fines to license suspensions and revocations.

For the licensee subject to discipline who wishes to contest the Commissioner’s decision, an appeals process is available. They are able to petition the Commissioner for reconsideration, or take their appeal to the appropriate Superior Court, Court of Appeals or California Supreme Court.

Related reading:

CalBRE Winter 2006 Real Estate Bulletin, “An Overview of the Administrative Disciplinary Process”

Further, now that CalBRE is part of the Department of Consumer Affairs (DCA), disciplinary actions even include civil claims or criminal charges against the offending licensee through the Attorney General’s office. The Real Estate Recovery Fund is available to compensate aggrieved parties in the event a seller’s agent, found to have caused money losses by failing to present all offer, is unable to pay. [Calif. Bus. & PC §10176.5]

Related article:

The Real Estate Recovery Fund: what it is and what it covers

But remember: all of this is avoided when the seller’s agent:

• presents every single offer;
• acknowledges the seller’s disposition; and
• maintains accurate, thorough records.

Don’t get caught up in the hassle of an unnecessary CalBRE investigation. Do yourself, your client and all prospective buyers and their agents a favor: present every offer, every time.

This article is Part II of a series on a seller’s agent’s duty to present every offer to purchase to their seller. For more on the requirements of the agency relationship and fiduciary duty for the seller’s agent, see Part I, “Complaints prompt CalBRE to stress: present every offer.”

Related topics:
department of real estate (dre), purchase agreement, real estate practice

Posted by Carrie B. Reyes | Jan 30, 2014 | Buyers and Sellers, Finance, Real Estate, Your Practice | 0

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

Got gripes about the loan closing process? The Consumer Financial Protection Bureau (CFPB) wants to hear what kind of problems you experience at closing, including:

• what aspects of closing are confusing or most helpful to homebuyers;
• what stages are most memorable to homebuyers;

• how long it takes to close and how long you feel it ought to take;
• how prepared homebuyers are for the closing process;
• what are some common closing errors;
• what common surprises turn up at closing;
• what type of advice do homebuyers seek during closing and who do they turn to;
• what are the most important questions homebuyers ask during closing; and
• what are the most important steps homebuyers take during closing?

In a recent first tuesday poll, 72% of respondents cited the lender as the main cause of problems turning up at closing.

Along these lines, comments received by the CFPB thus far have claimed lenders commonly:

• provide loan documents with very little time left before the end of the escrow period, leaving homebuyers with little time to review the documents prior to signing; and
• fail to review potential title conditions until just before closing, causing delays in the closing process.

Related article:

Even with new forms, borrowers must protect themselves

Other common last-minute lender hang-ups come from sources like a change in the homebuyer’s credit score, employment or available funds to close.

The best way to ward off potential surprises is to educate your homebuyer.  Give them a list of dos and don’ts, such as:

• Do let your employer know you’re applying for a mortgage. Every lender does a verification of employment prior to funding, and the employment information (salary, continued employment prospects, hours) represented on the mortgage application has to match what your employer says.
• Don’t take on any new debt or make any large purchases after applying for your mortgage until you’ve closed, which has potential to adversely affect your credit score.
• Do keep track of any large deposits or withdrawals from bank accounts, to confirm closing funds are present and sourced.
• Do review the good faith estimate (GFE) and question the lender about fees up-front, before closing.
• Do review loan docs at signing.  Don’t let the lender’s rush cause you to sign blindly.
• Do review the preliminary title report with your agent as soon as practicable.  The lender’s not the only one who’s able to catch inconsistencies!
• Don’t expect to be able to pull a fast one on a lender. Title companies also check a homebuyer’s history to reveal tax liens, child support or other obligations which do not appear on a credit report.

Want to be a part of making the closing process better for your clients? You have until February 7, 2014 to weigh in. Responses can be submitted at the Federal Register.

Related topics:
credit score, escrow

Posted by ft Editorial Staff | Sep 15, 2014 | Laws and Regulations, New Laws, Property Management, Real Estate | 0

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

Calif. Civil Code §846
Amended by S.B. 1072
Effective date: January 1, 2015

A property owner granting permission to a recreational user to enter the owner’s land for private, noncommercial aviation is not required to assure their property is safe for that activity.

Editor’s note — Private noncommercial aviation is just the newest addition to the list of recreational activities for which a property owner is not required to assume responsibility. Note, however, that existing law does not hold harmless a property owner who:

• willfully fails to warn against dangerous conditions on the property;
• receives consideration for granting permission to enter their property; or
• expressly invites a recreational user to enter the property for recreational purposes.

Related topics:

Posted by Sarah Kolvas | Nov 4, 2014 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Civil Code §§2079.23 and 1812.610
Added and amended by A.B. 2039
Effective date: July 1, 2015

Bidders at a real estate auction are prohibited from increasing their bids solely to inflate the auction price of the real estate.

An auctioneer or other authorized person is permitted to bid on behalf of a seller if:

• notice is given to all participants that such bidding is allowed in the auction; and
• the person bidding for the seller discloses to all participants that the bid has been placed on the seller’s behalf.

If an auction takes place online, the above notice is to be included in the end user license agreement, terms of service or equivalent policy posted on the web site or online/mobile application. The notice is also required to be available:

• directly on the auction website the bidder interacts with during the auction;
• through a distinguishable link or icon taking the bidder to a webpage with the required information.

Text links are to be in capital letters and distinguishable from the surrounding text.

These regulations do not apply to a credit bid made by a mortgage holder bidding to acquire the real estate subject to the mortgage.

Additionally, beginning January 1, 2015, a lender or auction company retained by a lender to control aspects of a real estate transaction is prohibited from requiring the homeowner or seller’s agent to release the lender or auction company from any liability resulting from the lender’s or auction company’s actions as a condition for the lender’s approval of the sale. Any provision or agreement in violation of this is void and unenforceable.

Related topics:

Posted by ft Editorial Staff | Sep 15, 2014 | Laws and Regulations, Licensing and Education, New Laws, Real Estate, Your Practice | 1

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

Calif. Business and Professions Code §§10150, 10151, 10162 and 10165.1
Added or amended by A.B. 2540
Effective date: January 1, 2015

Current California Bureau of Real Estate (CalBRE) licensees and license applicants are required to provide valid contact information to the CalBRE.

Contact information includes current:

• mailing or office address (office address is required for brokers);
• telephone number; and
• e-mail address.

All licensees are to notify CalBRE of any changes to their contact information within 30 days of making a change.

CalBRE is not required to publish this contact information. If CalBRE elects to publish this contact information, it is required to do so in a way that discourages the use of the information for unsolicited e-mail advertisements.

Related topics:

Posted by Matthew Taylor | Nov 28, 2014 | Laws and Regulations, Licensing and Education, New Laws, Real Estate | 13

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

Calif. Business & Professions Code §§30; 135.5

Amended and added by S.B. 1159

Effective date: January 1, 2016

Beginning January 1, 2016, the California Bureau of Real Estate (CalBRE) will no longer deny licensure to an applicant based on their citizenship or immigration status. Individuals who apply for California Bureau of Real Estate (CalBRE) real estate licenses may provide an individual tax identification number (ITIN) in lieu of a social security number or Federal Employee Identification Number.

Editor’s note — This law gives CalBRE oversight over real estate practitioners who previously practiced real estate in the unlicensed grey market. Instead of retroactively addressing abuses based on complaints received from aggrieved clients, CalBRE is now able to proactively discipline bad actors through formal enforcement processes. For more on how CalBRE handles complaints, see the October 2013 article “CalBRE debuts its online complaint submission system.”

Read the bill text

Related topics:
department of real estate (dre), immigration, real estate licensing

Posted by ft Editorial Staff | Sep 15, 2014 | Laws and Regulations, New Laws, Real Estate, Your Practice | 0

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

Calif. Business and Professions Code §494.4; Labor Code §§98.6, 1102.5 and 244
Added and amended by S.B. 666
Effective date: January 1, 2014

A real estate licensee, among other professional licensees under agencies within the California Department of Consumer Affairs (DOA), is subject to discipline by their licensing agency if they report or threaten to report the immigration status of a current, former or prospective employee or family member in retaliation for the employee’s exercise of protected conduct.

Protected conduct by an employee is expanded to include:

• written or oral complaints made for unpaid wages; and
• providing information to a person who has authority over the employee, another employee who has the authority to correct a violation or a public body conducting an investigation.

Any employer who retaliates against an employee for the employee’s protected conduct is subject to a penalty of up to $10,000 per employee for each violation. An employee who has been retaliated against is entitled to reimbursement for lost wages and benefits.

Related topics:

Posted by Sarah Kolvas | Dec 29, 2014 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Civil Code §§1947.6 and1952.7
Added by A.B. 2565
Effective date: July 1, 2015; January 1, 2015

Residential tenants

The landlord of any residential lease agreement created, extended or renewed on or after July 1, 2015 is required to approve a tenant’s written request to install an electric vehicle charging station at the tenant’s allotted parking space.

The tenant’s request to install an electric vehicle charging station is to be in writing and acknowledge the tenant’s consent to:

• comply with the landlord’s requirements for installation, use, maintenance and removal of the charging station and infrastructure;
• complete a financial analysis and scope of work for the installation of the charging station and infrastructure;
• provide a written description of proposed  improvements to the property, consistent with guidelines published by the Office of Planning and Research; and
• pay as part of the rent all costs associated with the installation, use and maintenance of the charging station and infrastructure.

Electric vehicle charging stations and any improvements are to comply with all local, state and federal law, zoning requirements, land use requirements and covenants, conditions and restrictions (CC&Rs).

The landlord does not have to approve a tenant’s request to install an electric vehicle charging station if:

• electric vehicle charging stations already exist for at least 10% of the tenant parking spaces;
• parking is not provided to tenants at the property;
• there are fewer than five parking spaces at the property; or
• the property is subject to residential rent control.

The landlord is not required to provide an additional parking space to accommodate the tenant.  If the newly constructed electric vehicle charging station becomes the tenant’s reserved parking space, the landlord is permitted to charge the tenant a monthly rental amount for the parking space.

The tenant is required to maintain a $1,000,000 general liability insurance policy, naming the landlord as an additional insured. The insurance coverage is to commence on the date of the landlord’s approval of construction, and last until the tenant forfeits possession of the property.

Commercial tenants

The following electric vehicle charging station requirements do not apply on commercial properties if:

• charging stations already exist on the property for sue by tenants in a ratio of at least two parking spaces for every 100 parking spaces at the property; or
• there are fewer than 50 parking spaces at the property.

Terms in a commercial lease agreement created, extended or renewed on or after January 1, 2015 which unreasonably restrict or prohibit the installation or use of an electric vehicle charging station in a parking space associated with the property are void and enforceable.

Restrictions are considered reasonable if they do not significantly increase the cost of the charging station or its installation, or significantly decrease the charging station’s efficiency.

A commercial tenant may not install charging stations in more parking spaces than allotted by their lease agreement, or more than the number of parking spaces proportionate to the tenant’s interest in the property.

If installation of a charging station grants the tenant a reserved parking space, the landlord may charge the tenant a reasonable monthly rental fee for the parking space.

Installed charging stations need to comply with all local and state health and safety standards, and zoning requirements.

The landlord may not willfully ignore an application for a charging station if their approval is required to complete installation. Approval or denial of an application needs to be in writing. The landlord is to approve the application if the tenant agrees to:

• comply with the landlord’s reasonable standards for installation;
• engage a licensed contractor to install the charging station; and
• within 14 days of approval, provide a certificate of insurance in the amount of $1,000,000 which covers damage caused by the charging station and names the landlord as an additional insured.

The tenant is responsible for any costs for:

• damages to the property resulting from the installation, maintenance, repairs, removal or replacement of the charging station;
• maintenance, repair and replacement of the charging station; and
• electricity associated with the charging station.

Commercial properties in a common interest development (CID) are also subject to existing laws prohibiting a homeowners’ association (HOA) from imposing unreasonable restrictions on the installation of electric vehicle charging stations in an owner’s designated parking space.

Read more:

Read the bill text.

Related topics:

Posted by Sarah Kolvas | Dec 22, 2014 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Business and Professions Code §§10159.5, 10159.6 and 10159.7
Added and amended by A.B. 2018
Effective date: January 1, 2015

An employing broker may authorize a real estate salesperson in their employ to file an application with the county clerk to obtain a fictitious business name under which the salesperson may conduct business. The salesperson filing for the fictitious business name is required to:

• deliver to the California Bureau of Real Estate (CalBRE) an application signed by the broker requesting permission to use a county-approved fictitious business name identified with the broker’s license number;
• pay any fees associated with filing an application with the county or CalBRE for a fictitious business name; and
• maintain ownership of the fictitious business name subject to the control of the broker.

To reduce filing requirements, a team name is now defined separately from a fictitious business name. A team name is not considered a fictitious business name triggering the above requirements if the team name:

• is used by two or more real estate licensees who work together to provide licensed real estate services under an employing broker;
• includes the surname of at least one of the licensees in conjunction with the term “associates,” “group” or “team;” and
• does not include the term “real estate broker,” “real estate brokerage,” “broker” or “brokerage,” or any other term suggesting the licensees are offering real estate brokerage services independent of a broker.

Any marketing materials — i.e., business cards, print or electronic media and “for sale” signs — using a fictitious business name or team name need to conspicuously display:

• the licensees’ names and license numbers; and
• the broker of record’s identity as prominently as the fictitious business name or team name.

A violation of these rules is no longer a misdemeanor.

Editor’s note — The increase in the number of salespersons using team names to create a brand identity gave rise to confusion about legal and filing requirements of fictitious business names vs. team names. This bill defines the standards a team name is required to meet to avoid the additional regulatory process required for fictitious business names. Team names now provide the benefit of bypassing the filing process, though they are more restrictive and do not offer the same versatility as fictitious business names.

Read more:

Read the bill text.

Related topics:
team names

Posted by Sarah Kolvas | Nov 6, 2014 | Appraisal, Laws and Regulations, New Laws, Real Estate, Tax | 0

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

Calif. Revenue and Taxation Code §402.5
Amended by A.B. 1143
Effective date: September 15, 2014

When determining property values for property tax assessments, a county assessor may not consider the value of any property sold more than 90 days after the valuation date, rather than the lien date, of any property being assessed.

Editor’s note —  The use of “lien date” in the prior law was deemed unclear as it may be understood as either January 1 for taxes on the regular roll or the date of the change in ownership on the supplemental roll. Thus, “valuation date” is meant to avoid legal ambiguity.

However, the law itself does not clarify what the valuation date is. The California State Board of Equalization (BOE) released commentary following these changes, stating  “valuation date” and “lien date” are synonymous if “lien date” is understood as the date of the change in ownership under the supplemental roll.  Therefore, in practice, “valuation date” is considered the date the property changes ownership.

Related topics:
property assessment

Posted by ft Editorial Staff | Dec 3, 2014 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Civil Code §714 and Government Code §65850.5
Amended by A.B. 2188
Effective date: January 1, 2015

Restrictions on the use of solar energy and photovoltaic systems are prohibited if they:

• decrease the efficiency of the system by 10%; or
• increase the cost of the system by more than $1,000.

Any government or private entity requiring approval for the installation of a solar energy system now has 45 days (reduced from 60 days) after receiving an application to issue a denial. If the entity does not timely deny the application, the application is deemed approved.

Solar energy systems and solar collectors for heating water in single family residences (SFRs), commercial buildings or swimming pools are required to be certified by an accredited listing agency that evaluates solar energy systems according to independent criteria, such as the American National Standards Institute or the American Association for Laboratory Accreditation. This replaces previous requirements that solar energy systems be certified by the Solar Rating Certification Corporation (SRCC) or other nationally recognized certification agency.

By September 30, 2015, all local governments operating a utility are required to adopt ordinances creating an expedited permit process for small residential rooftop solar energy systems. A small residential rooftop solar energy system:

• is no larger than a 10 kilowatts alternating current nameplate rating or 30 kilowatts thermal;
• conforms to all applicable state and local fire, structural, electrical and other building codes;
• is installed on an SFR or duplex; and
• contains a solar panel or module array that does not exceed the maximum legal building height.

Editor’s note – The state is currently in the process of drafting the 2^nd edition of the California Solar Permitting Guidebook.

The permit process is to integrate:

• the checklists and standard plans contained in the most current version of the California Solar Permitting Guidebook adopted by the Governor’s Office of Planning and Research;
• any modifications due to local climactic, geological, seismological or topographical conditions; and
• a checklist of all compliance requirements published on the city’s or county’s public web site.

The local government is to approve and issue a permit to an applicant upon completion of all requirements. If an application is incomplete, the local government is required to provide written notification to the applicant of all corrections required for permit issuance.

The local government is also required to permit electronic submission of applications and electronic signatures on all forms. If the local government is unable to accept electronic signatures, the ordinance is to provide reasons for non-acceptance of electronic signatures.

Solar energy systems eligible for expedited review only require one inspection completed in a timely manner. However, a separate fire inspection may be completed if the local government does not have an agreement with a local fire department to conduct fire safety inspections on the fire department’s behalf. Any solar energy system which fails inspection is subject to subsequent inspections.

A local government may not condition permit approval on a homeowners’ association (HOA)’s  approval of the small residential rooftop solar energy system.

 

Read more:

Read the bill text.

See “Energy efficiency 101 for California real estate agent,” Chapter 24.1 of first tuesday Realtipedia Volume 6: Real Estate Economics.

Current first tuesday students may access Realtipedia from the Student Homepage.

Related topics:

Posted by Jeffery Marino | Mar 28, 2014 | Buyers and Sellers, Fundamentals, Real Estate, Your Practice | 0

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

Public opinion of real estate agents is generally, well, abysmal. Okay, agents aren’t thought of as poorly as attorneys or politicians. But they come nowhere near inspiring the kind of trust that nurses and schoolteachers do. The fine people at Gallup have the numbers to prove it.

Agents in the high-stakes, high-intensity New York City real estate market are taking measures to improve their clients’ perception and improve their businesses. Rather than focusing their professional development on quick-money seminars, they are investing in advice from “business development coaches” — also known as charm school for brokers.

Can’t afford the tuition? Here are our favorite tips:

• stop talking and practice the art of being a good listener;
• banish “yes” or “no” questions from your client meetings, ask open-ended questions and actually learn something about your client’s needs;
• don’t be afraid of asking the tough financial questions up front — it saves everybody’s time in the end;
• turning off the cell phone shows your client they are your top priority; and
• practice building personal relationships with your clients — they are people, not leads.

All this charm coaching was actually encapsulated in Dale Carnegie’s seminal self-help book published in the 1930s: How to Win Friends & Influence People. Carnegie’s book proposes that the best way to connect with a person — gain their trust so you can gain them as a client — is to take a genuine interest in who they are and actually listen to what they have to say.

Remember, when you are a real estate agent you are not actually selling houses, you’re selling your ability to effectively represent another person in a real estate transaction. Yes, cunning and a killer-instinct may help you to close that big deal. But building quality relationships is the key to a successful long-term career.

Related topics:

Posted by ft Editorial Staff | Aug 1, 2014 | Commercial, Investment, Laws and Regulations, New Laws, Real Estate, Tax | 0

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

Revenue and Taxation Code §73
Amended by S.B. 871
Effective date: June 20, 2014

For property tax liens through the 2023-2024 fiscal year, the addition of an active solar energy system to a property is not considered “new construction,” and thus does not trigger re-assessment of ad valorem taxes.

Related topics:
solar energy

Posted by Sarah Kolvas | Dec 31, 2014 | Laws and Regulations, New Laws, Real Estate | 0

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

Calif. Civil Code §1624; Calif. Business and Professions Code §10148
Amended by A.B. 2136
Effective date: January 1, 2015

Electronic messages of an ephemeral nature, such as text messages or instant messages, are not sufficient writings to constitute an agreement to convey real estate in the absence of a written agreement. A real estate broker is not required to retain copies of text messages or instant messages related to a real estate transaction.

Read more:

Read the bill text.

Related topics: