Posted by Giang Hoang-Burdette | Mar 19, 2012 | Commercial, Investment, New Laws, Real Estate, Tax | 1

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

Income property brokers, heads up:  a 100% first-year depreciation deduction is available on qualified TIs. If you made improvements, or negotiated a nonresidential lease in 2011, forward this one on as a tax reminder!

Internal Revenue Code §168(k)(2)
Amended by Rev. Proc. 2011-26
Effective Date: March 29, 2011

Tenant improvements (TIs) constructed on nonresidential property after September 8, 2010 and before January 1, 2012 are eligible for a 100% first-year depreciation deduction.

To qualify for this 100% first-year depreciation deduction, the TIs must be constructed:

• under a lease agreement;
• on property used exclusively by the tenant; and
• more than three years after the building was placed in service.

The following improvements do not qualify for the 100% first-year depreciation deduction:

• building enlargements;
• elevators or escalators;
• structural improvements to common areas; and
• the internal structural framework of a building.

Related topics:

Posted by Ed Gauronski | Sep 5, 2012 | New Laws, Real Estate | 0

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

An extension of the 6% interest rate payment cap protects military homeowners.

Military and Veterans Code §405
Amended by AB 2476
Effective: January 1, 2013

During their military service, service members are not required to pay interest in excess of 6% on mortgages or trust deeds recorded before their service began. This 6% interest rate payment cap has now been extended to cover the year after the end of service.

Related topics:
calvet, interest rate, lender violations, mortgage

Posted by Ed Gauronski | Oct 22, 2012 | New Laws, Property Management, Real Estate | 1

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

Owners-by-foreclosure, heads up: changes ahead on the 90-day notice to quit

Code of Civil Procedure §1161c

Amended by S.B. 825

Effective date: January 1, 2013

To evict a holdover tenant, an owner-by-foreclosure must deliver a 90-day notice to quit due to foreclosure. The duty to provide this extended notice was to sunset on January 1, 2013. This law extends that duty through December 31, 2019. [See first tuesday Form 573 and 573-1]

Related article: Residential tenants, foreclosure and possession

The language of the notice has been updated. Updates are shown in bold:

If you cannot afford an attorney, you may be eligible for free legal services from a nonprofit legal services program. You can locate these nonprofit groups at the California Legal Services Internet Web site (www.lawhelpca.org), the California Courts Online Self-Help Center(www.courtinfo.ca.gov/selfhelp), or by contacting your local court or county bar association.

Related topics:
notice to quit

Posted by Carrie B. Reyes | Mar 20, 2012 | New Laws, Real Estate, Tax | 1

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

26 Code of Federal Regulations 601.105

Amended by Revenue Procedure 2012-23

Effective date: immediately

The Internal Revenue Service allows a first-year bonus depreciation business deduction of $8,000 for automobiles acquired in 2012.

The first-year bonus depreciation deduction cannot be claimed if:

• the automobile was purchased used;
• the automobile is not used more than 50 percent for business purposes; or
• the taxpayer elected out of the depreciation deduction.

The depreciation deduction limit for passenger vehicles purchased during 2012 is:

• $11,160 for the first year (or $3,160 if the first-year bonus depreciation deduction does not apply);
• $5,100 for the second year;
• $3,050 for the third year; and
• $1,875 for each succeeding year.

The depreciation deduction limit for vans or trucks acquired during 2012 is:

• $11,360 for the first year (or $3,360 if the first-year bonus depreciation deduction does not apply);
• $5,300 for the second year;
• $3,150 for the third year; and
• $1,875 for each succeeding year.

Passenger automobiles and trucks or vans with a lease term beginning in 2012 have a reduced deduction. To determine the deduction amount, the lessee must include in their gross income a pre-determined amount based on the fair market value of the vehicle. The inclusion amounts can be found in the notice.

Editor’s note — If you’re a broker or sales agent, chances are you may not have upgraded your vehicle during the past few years following the recession. This bonus deduction for purchasing a vehicle may be just the motivation to get you into new wheels and a peppier attitude.  The accounting for this bonus means the deduction is a subsidy which does not affect your regular five-year depreciation schedule.

Of course, this will most certainly increase vehicle sales, and that will increase jobs in the production and the sales of new vehicles. The ripple effect will boost purchasing in general, requisite for an increase in home sales volume.

Related topics:

Posted by ft Editorial Staff | Sep 24, 2012 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A developer constructed a common interest development (CID), drafting and recording the covenants, conditions and restrictions (CC&Rs) before any unit was purchased or a homeowners’ association (HOA) was formed. The CC&Rs included a provision stating if the HOA found a construction defect, it would pursue the developer through arbitration. Buyers purchased the units in the CID and signed the CC&Rs, thereby forming the HOA. A construction defect was found in the common area. The HOA sought to pursue the defect claim in court and the developer sought to have the dispute settled through arbitration.

Claim: The developer claimed the CC&Rs’ arbitration provision was enforceable since members of the HOA agreed to the arbitration provision in the CC&Rs upon purchase.

Counterclaim: The HOA claimed the arbitration provision in the CC&Rs was unenforceable since the CC&Rs were unconscionable, as they were created before the HOA was formed.

Holding: The California Supreme Court held the arbitration provision was enforceable since the CC&Rs were conscionable, as the HOA members had agreed to the CC&Rs when they purchased the property, regardless of whether the CC&Rs were drafted before the formation of the HOA. [Pinnacle Museum Tower Association v. Pinnacle Market Development (US), LLC, et al. (2012) 55 CA 4^th 223]

Editor’s note – first tuesday has long been an advocate against arbitration provisions, as any decision reached by the arbitrator is final and binding. Further, the ruling need not be based on any precedents, thus the outcome is impossible to predict and uncorrectable if the ruling is based on a misunderstanding of the law. As a matter of policy, first tuesday does not include any arbitration provisions in our library of over 400+ real estate forms.

Related article:

The fate of arbitration

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

Posted by Carrie B. Reyes | Mar 1, 2012 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

A buyer entered into a purchase agreement for an apartment complex with ownership vested in the name of a trustee under a trust agreement with the owners. The trustee withdrew from the sale and the buyer sought damages from the trust itself due to the trustee’s failure to sign the closing documents. The trustee claimed the buyer could not be compensated by the trust since the trustee held title to the property, and the trust arrangement did not. A California appeals court held the buyer was not entitled to compensation from the trust since trusts by their nature are not individuals or entities and cannot hold title to property, only a trustee can hold title to property when a trust arrangement is established. [Portico Management Group, LLC v. Alan J. Harrison et al.(December 28, 2011) _CA4th_]

Editor’s note – This case stems from an erroneous arbitration award. The purchase agreement included an arbitration provision providing if the contract was breached, the outcome would be handled by an arbitrator. The arbitration provision also stated an arbitration award is “subject to judicial review.” The contract was breached when the trustee withdrew from the sale and the arbitrator awarded compensation to the buyer from the trust, even though the trustees individually held title to the property, not the trust.

This obvious arbitration error was not corrected by the buyer who obtained the award, even though it had 10 days to seek a correction from the arbitrator and 100 days to petition the court to correct the award, as provided by California Code of Civil Procedures §§1284, 1288. The buyer sought to confirm the arbitrator’s judgment, which the court rejected as it named the trust and not the trustees. Since the court did not have the authority to alter an arbitrator’s decision, as the arbitrators’ decision had become final, it could not change the award to name the trustees instead of the trust once the deadline for seeking a correction had passed.

By their very nature, arbitration judgments are precarious. Arbitration clauses attempt to avoid litigation, which results in both parties losing their right to judicial oversight to assure the arbitrator’s award is fair and correct, unless the requirement for judicial review of the arbitrator’s award is included in the wording of the arbitration provision.

Further, arbitrator decisions are – you guessed it – arbitrary, not bound by legal precedent.

Thus, an inherent aura of uncertainty surrounds real estate contracts with arbitration. As a matter of policy, first tuesday’s purchase agreements and addenda have never from inception in 1978 contained an arbitration provision to better protect buyers and sellers from the perils of arbitration.[For a further discussion of arbitration, see the March 2011 first tuesday article, Bargaining for justice: arbitration and the loss of judicial review.]

Related topics:
arbitration,

Posted by Jeffery Marino | Jul 19, 2012 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A lender provided purchase-assist financing to a borrower secured by a first and second trust deed. The borrower defaulted and the lender initiated non-judicial foreclosure, selling the first trust deed to a third party at a trustee’s sale, wiping-out the second trust deed. The lender later assigned its rights to the second trust deed to an assignee. The assignee attempted to recover the remaining principal balance on the second trust deed from the borrower.

Claim: The assignee claimed it was entitled to recover on the junior lien since it was not the original holder of the senior lien and held the junior lien as an assignee, and was thus exempt from anti-deficiency statutes.

Counterclaim: The borrower claimed the assignee was barred from collecting the principal balance on the second trust deed since he was protected under California anti-deficiency statutes barring a deficiency judgment from being collected following a non-judicial foreclosure sale.

Holding: A California court of appeals held an assignee of a second trust deed is not entitled to recover the remaining principal balance on the junior lien since the recovery is barred by California anti-deficiency protection provided to borrowers whose senior lien is sold at a non-judicial foreclosure, regardless of whether the senior lien was sold to a third party and the junior lien was assigned after the foreclosure sale. [Bank of America v. Michael Mitchell (2012) 204 CA4th 1199]

 

 

Related topics:
anti-deficiency, junior lien, nonjudicial foreclosure

Posted by Giang Hoang-Burdette | Feb 10, 2012 | Feature Articles, Laws and Regulations, Real Estate | 7

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

This article reviews the 2005 bankruptcy reform, examines statistical evidence of the effects the reform had on mortgage default rates, and discusses the need for a repeal of bankruptcy reform to build a more stable mortgage and real estate market. 

Lenders led the bankruptcy onslaught

High numbers of mortgage defaults were in the works even before the 2008 financial crisis began to show its effects on California’s real estate market. The Bankruptcy Abuse Prevention and Consumer Protection Act of October 2005 (bankruptcy reform) completed construction of the bars which would condemn so many homeowners to their current negative equity prisons.

Spun as a cure for the allegedly rampant fraud perpetrated by individual debtors (read: non-corporate America), the 2005 bankruptcy reform made it tougher for individuals to get out from under unsustainable debt and regain their financial footing. Riding high on the wave of lender dominance, the rentier class ushered in higher filing fees, more restrictive qualifying criteria and a curb on the judicial authority to grant cramdowns to negative equity homeowners seeking bankruptcy relief to keep their homes. With bankruptcy reform, mortgage lenders forced homeowners to bear the entirety of the risk of property devaluation — this after lenders had rubber-stamped approvals for the same bloated home values during the Millennium Boom. [For more information about the struggle between the debtors and the rentiers, see the September 2011 first tuesday article, Rentiers and debtors: why can’t they get along? ]

Lenders and Wall Street (collectively, the rentiers) reveled in their purported victory, oblivious and (worse) indifferent to how their actions would impact the economy beyond the confines of their own balance sheets, by then replete with distended mortgage assets. The financial crisis would show their celebration was not without cause: bankruptcy reform was one of the saving graces of Wall Street mortgage bankers during the onslaught of the housing crisis since their solvency was no longer imperiled by bankruptcy judges’ cramdown authority or proper mark-to-market accounting standards, both protections having been removed by bankruptcy reform and congressional fiat.

Stricter bankruptcy requirements

To understand how bankruptcy affected a change in mortgage defaults, a brief review of the 2005 bankruptcy reform is instructive.

There are two main types of bankruptcy available to individuals: Chapter 7 and Chapter 13. In Chapter 7 bankruptcy, a homeowner’s home is sold to satisfy his unsecured debts (e.g., credit card debt, medical bills).

In Chapter 13 bankruptcy, a homeowner who has a positive equity beyond their homestead amount can keep their home by arranging a payment plan for any delinquent mortgage payments and other debts. [For more information about the relief available under each respective type of bankruptcy, see the first tuesday Market Chart, Bankruptcy’s often overlooked tie to homeownership.]

The single most important change homeowners experienced under bankruptcy reform was the removal of the judicial authority to grant cramdowns on principal residence mortgage debt to individuals filing a Chapter 13 bankruptcy petition with the intention of keeping their homes. (Remember, under Chapter 7 the home is sold, not retained.)

Bankruptcy reform also made both types of bankruptcy more expensive. Attorney filing requirements (and thus, attorney fees paid by clients) were increased, credit counseling was mandated and bankruptcy petitioners were required to complete a course in debt management while the bankruptcy was in process. Previously, the average cost for Chapter 7 bankruptcy was $900; post-reform, the average cost increased to $1,500. For Chapter 13 bankruptcies, average costs rose from $3,700 to $5,700. None of this helps a negative equity homeowner keep his home, as was the case prior to the 2005 bankruptcy reform. 

Editor’s note — While credit counseling and debt management courses are theoretically sound measures for those facing bankruptcy, the increased “cost of entry” into bankruptcy produced by reform effectively nullifies the good intent. The very same people who would benefit most from counseling and debt management do not have access to it simply due to the high fees required to file.

Under 2005 bankruptcy reform, homeowners who file for bankruptcy must pass one of two means tests to determine:

• which type of bankruptcy they may file under; and
  
• how much they must repay when they file bankruptcy.

The two means tests are the income-only means test and the income-asset means test, so dubbed by the economists. [For the full text of the study, see the November 2011 American Economic Journal: Economic Policy paper, Did Bankruptcy Reform Cause Mortgage Defaults to Rise?]  

Editor’s note — For simplification purposes, in the discussion that follows, the home is the only asset considered, but of course assets can include other properties owned, vehicles, jewelry, etc.

The income-only means test

The income-only means test applies when a homeowner’s home equity is:

• nonexistent, as is the case with over two million negative-equity California homeowners; or
• positive, but entirely exempt as less than the amount of the state’s (California’s) homestead exemption. [For California’s current homestead exemption limits, see the December 2009 first tuesday Legislative Watch, Homestead exemption increases affecting future judgment liens.]

If no home equity exists, the homeowner filing for bankruptcy must annualize his average family income during the six months prior to the bankruptcy filing, then compare that annualized average family income with the median income within the state.

Editor’s note — As of November 1, 2011, California’s median family income amounts are:

• Single-earner: $47,683;
• Two earners: $61,539;
• Three earners: $66,050; and
• Four earners: $74,806.

If the annualized family income is less than the state median income, the homeowner may file for bankruptcy under Chapter 7. But the home cannot then be retained and must be sold or foreclosed upon.

If the annualized family income is greater than the state median income, the homeowner must calculate their non-exempt income to determine whether they file under Chapter 7 or Chapter 13.

To calculate the non-exempt income, they must first calculate what is called their individual income exemption. This is the total of their exemptions set by a list of pre-determined allowances, including:

• housing costs;
• transport costs; and
• personal expenses. [For a fuller discussion of allowances and exemptions used in calculating the individual income exemption, see the U.S. Justice Department’s Census Bureau, IRS Data and Administrative Expenses Multipliers.]

The amount of the individual income exemption is then subtracted from the homeowner’s actual income to arrive at the non-exempt income. If a homeowner’s non-exempt income is less than or equal to $2,000, they may choose to file under Chapter 7. If it is greater than $2,000, they must file under Chapter 13.  As a result, in Chapter 13 they must use all of their non-exempt income for five years to repay their debts. Thus, the family’s standard of living will deteriorate during that five-year period.

The income/asset means test

The income/asset means test applies when a homeowner has excess home equity remaining after deducting the amount of the state’s homestead exemption, called non-exempt assets (again, in this discussion, these assets consist entirely of that remaining excess home equity). [For current homestead exemption amounts, see the December 2009 first tuesday Legislative Watch, Homestead exemption increases affecting future judgment liens.]

Editor’s note — Bankruptcy reform also capped homestead exemptions at $125,000 for homeowners who have owned their homes for less than 3 1/3 years. In California, this only impacts one of the three tiers of homestead exemptions, that of the aged or disabled, which is currently set at $175,000.

A homeowner with non-exempt assets (a noted rarity in California’s current real estate market) who files for bankruptcy is obliged to repay the greater of their:

• non-exempt assets under Chapter 7; or
• five years’ worth of non-exempt income under Chapter 13 (see above calculation to determine non-exempt income amount).

Since individuals have to pay more for less protection under bankruptcy reform, researchers predicted that defaults would increase across all types of loans. This is especially logical for homeowners, who now pay more to file for Chapter 13 bankruptcy, have to pay more back under their bankruptcy repayment plans and receive no relief on their negative equity position.

More specifically, homeowners whose income exceeded the thresholds set under the income-only means test or the income/asset means test were expected to experience the greatest increase in percentage of mortgage defaults.  As you will see, they did.

Reform in, defaults up; de jure, de facto basis

The data used to determine bankruptcy reform’s impact consisted of 663,412 first-lien 30-year mortgages originated in purchase or refinance transactions between January 2004 and December 2005. Loans were separated according to whether they were prime loans (353,225) or subprime loans (310,187), and monitored from a period lasting from three months prior to bankruptcy reform through three months after bankruptcy reform.

Editor’s note — Important to note is that the end of the sample period is still well before the wave of defaults caused by the financial crisis and ensuing housing bust. Also, the homestead cap referenced above also played a role in whether a homeowner was more likely to default on his mortgage after bankruptcy reform, but due to its limited effects in California, it is not thoroughly digested here.

Post-reform mortgage defaults rates were compared to pre-reform default rates. The results followed the expectations: in prime loans, mortgage defaults rose 23% after bankruptcy reform. For homeowners with subprime mortgages, mortgage defaults rose 14%.

Breaking the results down further, 27% more prime mortgage homeowners subject to the income-only means test defaulted on their mortgages after bankruptcy reform. In contrast, 5% more subprime mortgage homeowners defaulted after bankruptcy reform.

With the income/asset means test, prime mortgage homeowners defaulted 11% more post-reform; subprime mortgage homeowners subject to the same means test defaulted 11% less than their pre-reform counterparts.

To explain the decrease in mortgage defaults for subprime mortgage homeowners subject to the income/asset means test, researchers indicated that the rate of mortgage defaults for subprime mortgage homeowners increased through the entire sample period, however the rate of increase slowed post-reform.

Subprime mortgage homeowners are least likely to have a firm understanding of their financial situation, and thus are more reliant on others (say, bankruptcy judges) to make their decisions. They are also most likely to be irrationally bound to the family home and most likely to respond to the dogma of moral obligation to pay one’s legal debts, to believe in their self-defeating efforts to pay their mortgages and accept the decrees of their bankruptcies, come hell or high water. [For more information on financial illiteracy and homeownership, see the May 2011 first tuesday article, Financially illiterate homebuyers in distress — agents to the rescue!]

While mortgage defaults were up overall in subprime mortgage homeowners, as a group (likely first-time homebuyers) with generally fewer assets and generally less income, they are more likely to “pass” the means tests and qualify to file for the cheaper and less financially burdensome Chapter 7 bankruptcy. Thus, the barrier posed by bankruptcy reform is lower, and mortgage defaults are thus less pronounced than in the prime mortgage homeowner category. 

By the same logic, prime mortgage homeowners have more to lose (generally more income, generally more assets) when filing for bankruptcy — they are more likely to “fail” the means tests and be forced to file under the more expensive Chapter 13 bankruptcy. And with cramdowns off the table, what impetus does a negative equity homeowner with money have to pour five years of their non-exempt earnings into paying down a black hole asset?  So, they take the rational strategic default, as dictated by the 2005 bankruptcy reform. Then their future income is theirs.

Undewater homeowners find buoyancy in strategic default

The researchers chose a sample period which began and ended prior to the onslaught of mortgage defaults precipitated by the financial crisis.  Thus, they could more accurately track the impact of bankruptcy reform alone.

Consider their findings in relation to California’s current landscape. The Great Recession’s brutal housing price adjustment and the current ongoing jobless Lesser Depression have created a population of financially insolvent California homeowners who have a decreased ability to support their families, and pay for housing. For homeowners whose finances are stretched thin by unemployment and mounting debts, bankruptcy proceedings still offer debt relief for unsecured debt (e.g., credit card and medical debt) and buy time to remain in the home while making no payments, generating net savings after paying all bankruptcy costs.  

And during these hard times, bankruptcy filings have accordingly soared – and will continue to rise for several more years. [For more information about the automatic stay provision, see the first tuesday Market Chart, Bankruptcy’s often overlooked tie to homeownership.]

However, as the researchers revealed and is painfully apparent to anyone who keeps tabs on the real estate market, post-reform bankruptcy is powerless to provide long-term relief for the largest and most devastating type of homeowner debt — the mortgage on a negative equity home. For an underwater homeowner, the automatic stay is just an extension of the inevitable; a variation of the extend-and-pretend loan modification game, just from a different source (the court stay, rather than lender forbearance).

The cramdown prohibition, increased fees and more restrictive filing rubric stifle the ability of homeowners, and by extension the housing market, to recover from this financial crisis. Without cramdowns, the majority of homeowners who file for bankruptcy will lose their homes, take a major hit to their credit (and their future economic opportunities) and add yet another property to a saturated multiple listing service (MLS) market already struggling to find willing and able buyers.

Whether or not they intended it, Wall Street and collaborating mortgage lenders created the perfect trap for homeowners when they rallied together to pass bankruptcy reform: homeowners have no source of assistance to help them with their negative equity other than a DRE-licensed real estate gatekeeper who can tell them, calmly and rationally, to check their family balance sheet to determine if it makes sense to strategically default, sound financial advice any investment counselor can provide for a fee. [For more information about determining whether it makes financial sense for a buyer to strategically default, see the October 2010 first tuesday article, The LTV tipping point: when negative equity owners strategically default; for more information on this divide between the two classes of debtors, see the January 2012 first tuesday article, The morality of strategic default: businesses vs. homeowners.]

Reform the reform!

first tuesday will be the first to agree with readers: strategic default is not the ideal solution. But we do not live in ideal times. For homeowners, it has become the only rational decision to make under the circumstances they must live with – it’s either walk away or stay chained to a black hole asset. Otherwise stated, it’s the application of the laws of antideficiency or those of bankruptcy.  The antideficiency walkaway has prevailed among those who take charge of their future. [Stay tuned for our upcoming digest of California’s antideficiency laws!]

It’s clear from numerous policy declarations that the government entities are not taking the homeowners’ side against lenders on this cramdown debate — even though they had no problem doing so for businesses, for which cramdown authority still exists. The conflict lies in the government ownership of two thirds of the mortgage paper in this country, a situation which will exist for years.  [For more information on Fannie Mae and Freddie Mac’s stance on cramdowns, see the November 2011 first tuesday article, Surprise: Frannie says “no thank you” to cramdowns.]

Like it or not, strategic default is the future to which we commit the housing market in California if we do not address the flaws in our government’s treatment of homeowner debt. Each time the housing market takes a dip and jobs are lost, we throw the majority of homeowners — the 99% — to the mercy of lenders, unwilling to change their improper societal behavior at the risk of losing profits, and to Congress and the administration, unwilling to legislate against lenders at the risk of losing their personal funding. There must, in any democracy, be a third and independent party – the courts – who can step in and break the social stalemate. After years of deregulation and lender missteps leading directly into the financial crisis, a reform of the reform would be a critical step in the right direction.

Want to know more about bankruptcy’s ties to real estate? Stay tuned for our upcoming article on bankruptcy and single purpose entities (SPEs) holding and operating real estate.

Related topics:
bankruptcy

Posted by Carrie B. Reyes | Oct 15, 2012 | Laws and Regulations, Reader Polls, Real Estate | 3

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

Do you think banks forgiving the second lien mortgage debt of some homeowners will help these homeowners stay in their homes?

• Yes. (64%, 154 Votes)
• No. (36%, 88 Votes)

Total Voters: 242

Is your client one of the “lucky” few receiving Bank of America (BofA)’s second lien mortgage forgiveness letter? Around 150,000 homeowners nationwide have had their second lien balances forgiven and released by BofA, in accordance with the national settlement’s directive on principal reduction.

Related article:

Is $18 billion enough for California homeowners?

The program is available by “invitation only.” Invitees are restricted to homeowners who:

• have second mortgage loans held or serviced by BofA; and

• are currently in default on their first or second mortgage.

Homeowners who receive a letter will automatically be enrolled in the program unless they choose to opt out within 30 days. There will be no effect to the homeowner’s credit rating, as BofA will report the account as “paid as agreed.”

Everyone wins.  Right?

Nope. Roughly 12,000 of these homeowners have already discharged their second lien debt through bankruptcy. But this hasn’t stopped BofA (and JPMorgan Chase) from “re-forgiving” the debt to allow the previously wiped-out debt to meet their national settlement quotas. This leaves homeowners vulnerable to tax scuffles with the Internal Revenue Service (IRS) over whether the amount “forgiven” by the bank is taxable income.

BofA defends its actions by claiming the lien still exists, even if the debt has been discharged through bankruptcy. Releasing the lien provides homeowners with the benefit of a hassle-free homesale, down the road.

first tuesday insight

It has begun – banks are spinning the national settlement to their advantage. BofA, our cup runneth over, but it stinks of vinegar. Clarification is in order. Shall we?

For homeowners who have been through bankruptcy, BofA is not providing a special service. The banks must release liens when a debt secured by a home is satisfied. In California, the trust deed must be re-conveyed within 30 days of the satisfaction of the debt. If they have not been released, homeowners can contact a title insurance company to dispute the lien. [Calif. Civil Code §2941]

For most homeowners who accept the second lien forgiveness, the possibility of being taxed on the “gain” is often a non-issue. Through December 31, 2012, canceled debt is excluded from income tax due to the federal Mortgage Forgiveness Debt Relief Act. The Act applies to loans used to buy, build or improve a homeowner’s principal residence. Therefore, if the forgiven second lien is both secured by a principal residence and used to buy, build or improve the same residence, then the debt is not taxable as income. [IRS Publication 4681]

To avoid being taxed on the forgiven debt, homeowners must report the income on IRS Form 982. It is always helpful to seek the advice of a tax professional.

Related article:

Tax avoidance for discounted shortpays set to expire – are Californians in trouble?

However, homeowners who took out second lien mortgage loans to finance a non-housing related purchase must either opt out of the debt forgiveness or face the tax consequences.

Re: How to Erase a Debt That Isn’t There from the New York Times and BofA to Forgive 150 Second Liens from Mortgageloan.com

Related topics:
bankruptcy

Posted by ft Editorial Staff | Sep 18, 2012 | Buyers and Sellers, Real Estate, Your Practice | 0

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

If you are a newly minted real estate agent, or if you are considering getting your license, this book is for you. The Real Estate Field Manual: An Official Selling Guide, by Barbara C. Nash, is full of the same practical information you would learn by working alongside any experienced agent. This book is an ideal beginner’s guide for those in need of guidance. Consider this your surrogate mentor!

This is not your typical overly verbose textbook. It is concise, approachable and easy to comprehend. The tone is nimble and light, with a generous dose of cartoons and active language to keep the novice agent engaged. Nash, a Minneapolis real estate agent with over 30 years of experience, conveys her excitement about her job, infusing her readers with this same level of excitement. This guide is written from a national perspective, but places significance on skills real estate agents can use in every locale, including California.

The Real Estate Field Manual is a perfect reference tool. As the chapters are non-sequential, the reader can easily locate and brush up on the issue concerning them. The book features pragmatic content such as:

• scripts for talking on the phone with new clients;
• creating a professional voicemail message;
•  soliciting new clients; and
• writing and submitting an offer .

Nash includes some basic real estate vocabulary and a thesaurus to keep your advertising fresh and accurate. Also included are checklists to help you stay organized despite an agent’s frequently unconventional work hours. Further, these lists are fully customizable on the CD-ROM that accompanies the book, allowing you to tailor them to your personal practice.

A majority of the book sticks to the fundamental principles of real estate practice. However, Nash occasionally strays into territory beyond the basics, tossing relevancy to the wind. For instance, did you know between 8 a.m. and 10 a.m. is when your pain tolerance is highest? Now you do, because this odd little tidbit is included in the book. Another weaker moment is the chapter on becoming “computerized,” which is outdated. Nash devotes too much space commenting on the importance of email, which is certainly not going to inform a majority of readers.

Further, Nash is guilty of a non-productive bias: strongly favoring working with sellers over buyers. According to Nash, buyers are unpredictable, contradictory, confused and feel no loyalty to their agent. Nash’s bias harms an agent’s chance for success by making it seem like a chore to work with buyers, who can provide lucrative opportunities for a newly licensed agent. [See first tuesday Form 103]

Related articles:

July 2012 article of the month: It’s the demand, stupid!

Will the real buyers please stand up?

Nash only strikes a few flat notes, as a majority of the content is indispensible for new agents. The Real Estate Field Manual includes a section on working with senior clients is especially meaningful for new California agents, as the Baby Boomer demographic looks for more manageable property to replace their large suburban homes in the coming years. Boomers may very well be the drivers of the nascent real estate recovery, and Nash provides helpful commentary to cater to this crucial demographic.

Can the Real Estate Field Manual sufficiently replace the knowledge gained by working alongside an experienced agent? Not entirely, but it’s a good place to start if job shadowing isn’t available to you. If you’re new to the business, or struggling to make a living and think you could benefit from a re-tooling of your approach, the Real Estate Field Manual is a worthy addition to your library. The Real Estate Field Manual shines most brightly as a resource for the greenhorn real estate agent; easy to understand, straightforward, with plenty of cartoon frivolity.

Related topics:

Posted by ft Editorial Staff | Jan 1, 2012 | New Laws, Real Estate, Your Practice | 1

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

These regulations define a real estate broker’s proper handling of trust funds for his client 

DRE Regulation Article 15 Section 2830

Effective: October 26, 2011

An agency relationship exists between a real estate broker and a client for whom the broker holds trust funds. In this relationship, the broker owes a fiduciary duty to the client. A benefit the broker receives related to the handling of a client’s trust funds belongs to the client and must be passed to the client.

Without possession of written permission from the client, it is unlawful for a real estate broker or corporate broker to directly or indirectly receive personal or professional fees, compensation or consideration from a person or institution other than the client as inducement for trust fund account placement.

Without possession of written permission from the client, the following activities performed directly or indirectly by a person are considered inducements for trust fund account placement and are unlawful:

• receiving or requesting payment for, provision of or assistance with business expenses, including but not limited to rent, employee salaries, furniture, copiers, facsimile machines, automobiles, telephone service or equipment or computers;
• receiving or requesting consideration intended for the benefit of the broker rather than the trust account, including cash, below market rate loans, automobile charges, merchandise or merchandise credits;
• receiving or requesting to receive on behalf of the broker or corporation, compensating balances or benefits in the pricing or fees for the maintenance of a compensating balance account (a “compensating balance” is defined as the balance maintained in a checking account or other account in a bank or recognized depository in the name of a real estate broker for the purpose of paying bank fees on a separate trust fund account);
• receiving or requesting all or any part of the time or effort of an employee of the bank or other recognized depository for a service unrelated to the trust account; and
• receiving or requesting expenditures for food, beverages and entertainment.

Receipt or request of the following does not violate law:

• promotional items with a permanently affixed company logo of the bank or recognized depository with a value of $10 or less for each item (items exclude gift certificates, gift cards or other items with a specific monetary value on its face, or that may be exchanged for any other item having a specific monetary value); and
• education or educational materials related to the business of trust fund management provided continuing education credits are not given.

It is presumed unlawful to receive or request any form of consideration as an inducement for the placement of a trust account if the consideration is not specifically set forth in this section.

Related topics:
general agency duty, new laws 2011, trust funds

Posted by ft Editorial Staff | Jan 1, 2012 | Licensing and Education, New Laws, Real Estate | 0

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

This regulation specifies the duties and responsibilities of real estate brokers regarding previously licensed persons now debarred from licensed activities by the Department of Real Estate (DRE) Commissioner.

DRE Regulation Article 4 Section 2725.5

Effective: October 26, 2011

The Department of Real Estate (DRE) Commissioner is authorized to debar a licensed or unlicensed person from:

• employment with or management of a real estate business;
• participation in the business activity of a real estate salesperson or broker; and
• engagement in real estate-related business activity on the premises where a real estate salesperson or broker conducts business.

A broker is responsible for screening licensed and unlicensed employees, as well as regular business associates engaged in real estate-related business activity on the broker’s premises. These responsibilities include a review of the DRE’s listing of debarred persons and publication of disciplinary actions.

A broker is required to report violations to the DRE.

Editor’s note – Under Department of Real Estate (DRE) mandate, a broker is responsible for monitoring his employees, including agents. first tuesday’s CalPaces broker appreciation program assists brokers with this task. Brokers enrolled in the CalPaces program receive monthly reports of the status of all licensees the DRE has on record as working under their broker license. The reports include information on:

• an agent’s name, DRE license number and date of license expiration; and
• which agents in the prior month have enrolled in a continuing education course with first tuesday.

For more information on how brokers can participate in the CalPaces program, contact a first tuesday representative.

Related topics:
brokers, license, new laws 2011

Posted by Ed Gauronski | Jul 27, 2012 | Investment, Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A buyer purchased property to use as his principal residence, taking title in the name of a limited liability company (LLC) solely owned by the buyer. The buyer claimed a first-time homebuyer credit on his individual tax return. The Internal Revenue Service (IRS) disallowed the buyer’s first-time homebuyer credit, issuing a notice of deficiency and demand for additional tax payment.

Claim: The buyer claimed he qualified for first-time homebuyer credit since he was the sole owner of the LLC which took title to the property.

Counter claim: The IRS claimed the buyer did not qualify for the first-time homebuyer credit since the property was not vested in the name of the individual buyer but in the LLC.

Holding: A federal tax court held the buyer was not eligible for the first-time homebuyer credit since the LLC held title to the property occupied as the buyer’s principal residence and first-time homebuyer tax credit is intended for individuals, not entities. [Rospond v. Commissioner of Internal Revenue (May 21, 2012)_TC_]

Editor’s note: The buyer should’ve withdrawn the money for the property from the LLC for his personal account—a movement devoid of any tax consequences. The buyer should’ve then placed title to the property in his own name. Then he would have qualified for the first-time homebuyer tax credit.

Related topics:

Posted by Sarah Cantino | Aug 1, 2012 | Fundamentals, Laws and Regulations, Real Estate, Recent Case Decisions, Your Practice | 1

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

Facts: A real estate broker entered into an exclusive listing agreement with a seller of land. The listing agreement stated any buyer’s broker would be entitled to a fee, upon close of escrow, as a third party beneficiary under the listing, if the buyer’s broker submitted an offer at the listed price “…or on other price or terms acceptable to the seller.” A buyer made an offer at the listed price, which the buyer’s broker submitted to the seller’s broker. The seller countered, raising the purchase price.  Negotiations failed and an agreement was never reached. The buyer’s broker made a demand on the seller for his fee since he submitted a full listing price offer. The seller refused to pay the fee.

Claim: The buyer’s broker claimed he was due a fee as the third party beneficiary provided for in the listing agreement since he submitted an offer for the full price set in the listing agreement.

Counter claim: The seller claimed the buyer’s broker was not entitled to a fee, since the buyer’s offer, while at an amount equal to the listing price, did not satisfy the “other price and terms acceptable” to the seller, thus the offer was never accepted and escrow was never closed.

Holding: A California appeals court held the buyer’s broker was not entitled to a fee since his buyer’s offer was not accepted by the seller, and no purchase agreement was entered into by the seller and buyer, as required to earn a fee. [RealPro, Inc. v. Smith Residual Co., LLC (2012) 138 CA3rd 255]

Editor’s Note: The buyer’s broker assumed he needed only to present a minimum threshold offer (the listed price) on the property. However, a listing price is designed only to initiate negotiations between the seller and potential buyers. This intent is evidenced in the listing agreement, which provides the seller with the right to opt for “other price and terms acceptable” to the seller, rather than being held to the minimum threshold amount set forth in the listing.

In effect, an offer satisfies the listing conditions for payment of a fee only if the seller found the price and terms acceptable, whether or not it met the minimum listing price threshold, and escrow closed. The seller did not find the buyer’s offer based on the full listing terms acceptable, thus the offer did not satisfy the specifications of the listing, so the buyer’s broker received no fee.

Forms — first tuesday Form 102, Seller’s Listing Agreement; first tuesday Form 103, Buyer’s Listing Agreement; first tuesday Form 105, Fee Sharing Agreement; first tuesday Form 273, Broker Fee Addendum

Related topics:
listing agreement, sales agent

Posted by ft Editorial Staff | Jan 1, 2012 | Commercial, Investment, New Laws, Real Estate | 0

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

This law clarifies the procedures for determining the environmental impact of city or county projects as required by the California Environmental Quality Act (CEQA).

CA Public Resources Code §21083.9

Amended by S.B. No. 226
Effective January 1, 2012

The adoption or amendment to a general plan by a city, county or special district may be conducted concurrently with the scoping meeting required by the California Environmental Quality Act (CEQA) for any building project of statewide, regional or area-wide significance.

Editor’s note — A general plan is a plan made by a local agency for the adoption or amendment of zoning or subdivision ordinances, improvements or other public works projects. A “scoping meeting” is a meeting organized by a city, county or special district open to the public for input about environmental information to be considered in the adoption or amendment of a general plan.

CA Public Resources Code §21084

Amended by S.B. No. 226
Effective January 1, 2012

If a project’s greenhouse gas emissions have no significant impact on the environment, the project is not necessarily exempt from CEQA requirements.

Editor’s note — The “projects” to which these laws are referring include the enactment or amendment of zoning ordinances, the issuance of zoning variances, the issuance of conditional use permits and the approval of tentative subdivision maps, excluding any actions undertaken to prevent or mitigate an emergency.

Related topics:
california environmental quality act (ceqa), new laws 2011

Posted by ft Editorial Staff | Apr 10, 2012 | Change The Law, Real Estate | 1

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

In order to force lenders to take serious steps towards meaningful loan modifications for insolvent negative equity homeowners, lenders must have competition to do so in the form of judicial cramdowns in bankruptcy (as they did before 2006). The return of hundreds of thousands of California homeowners to solvency is a social and economic good voluntarily accomplished by the lender or involuntarily imposed on them by the bankruptcy courts.

Related article:
Cramdowns, cramdowns, cramdowns

Related topics:

Posted by ft Editorial Staff | Apr 10, 2012 | Change The Law, Loan Products, Real Estate | 0

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

The CalVet program is a California government-operated financing scheme which issues bonds to fund variable rate mortgages made to veterans. CalVet mortgages are structured as archaic land sales contracts with title vested in the name of CalVet, not the veteran buyer. CalVet loans are more stringent and restrictive against the veteran-borrower ‘s  rights of possession and equity financing arrangements than a mortgage insured by the Federal Housing Administration (FHA) or the federal Veterans Administration (VA). They are also peculiarly all variable interest rate loans, which should not be the staple of any stable mortgage  program sold to anyone and especially not of one that is run by the state government. The CalVet program is an unnecessary burden on both the state and on veterans and should be discontinued and phased into the private banking sector over time.

Related article:
Chapter 41 of first tuesday’s Finance, 5^th edition

Related topics:

Posted by ft Editorial Staff | Apr 10, 2012 | Change The Law, Licensing and Education, Real Estate | 0

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

Increased scrutiny is required to straighten brokers’ lax oversight of sales agents, a negligence which helped bring about the Great Recession and the current lack of public confidence in real estate licensees. Brokers with more than three agents working under their license will be required to obtain a Department of Real Estate (DRE) endorsement for Office Management, subject to an additional three to six hours of continuing education and an annual renewal fee as set by the DRE, say $25. Additionally, newly-licensed sales agents need to be “apprenticed” to a broker for a period of two years before they can directly act on behalf of a broker with a client. The same sort of training and timeframe is currently required of appraisers, who are in positions to be of far less harm to the public than wayward and unschooled agents.

Related article:
The rabbit and the greyhound: DRE disciplinary action and broker supervision

Related topics:

Posted by ft Editorial Staff | Apr 7, 2012 | Change The Law, Property Management, Real Estate | 0

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

Unregulated late charges lead directly to their unlawful use by landlords as penalty amounts, windfalls unrelated to the cost of collection or loss of use of the late payment. Case law so dictates, but is ignored or gamed by discounting rent if paid before it’s delinquent. Late-charge legislation controlling mortgage lender late charges and the grace period for delinquencies has kept lender conduct in line with the best interests of society, limited to the lender’s actual costs — no profit permitted for collection efforts.

Related article:
Real Estate Property Management, 5th Edition, Chapter 22, “Other amounts due under three-day notices,” 2010, Renaud 177

Related topics:

Posted by ft Editorial Staff | Apr 7, 2012 | Change The Law, Real Estate | 0

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

This legislation would end the practice of using or needlessly updating legislation to include pronouns correcting gender. Instead of using “he” or “she”, we propose the use of the pronoun “they” to convey male and female, both singular and plural. This would serve to clarify law without creating an unnecessary division of gender, and prevent the legislature from spending valuable resources on extraneous updates of legislation merely for the sake of political correctness.

Related topics:

Posted by ft Editorial Staff | Apr 10, 2012 | Change The Law, Real Estate | 0

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

This legislation would require sales agents and brokers who represent real estate consumers to disclose the DRE license number of their employing or corporate brokers in addition to their own DRE license number on any materials meant to be the first point of contact with real estate consumers. This legislation would provide greater transparency to the consumer and compel employing brokers to more closely monitor the actions of the licensees working under their direction.

Related article:
January 2009 first tuesday Legislative Watch

Related topics:

Posted by ft Editorial Staff | Apr 10, 2012 | Change The Law, Investment, Real Estate, Tax | 0

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

Unbelievable as it may be after decades of thievery or gross negligence, no entity, either government or private, is responsible for the oversight of intermediaries in a §1031 exchange. To protect investors and their brokers from negligent or unscrupulous intermediaries, the Attorney General should be authorized to register and regulate these individuals before they can hold themselves out as intermediaries and accept funds or title to property.

Related article:
Failure of §1031 “qualified” intermediary to fund defers profit tax

Related topics:

Posted by ft Editorial Staff | Apr 10, 2012 | Change The Law, Licensing and Education, Real Estate | 0

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

This legislation would require all individuals providing real estate sales and property management services to be licensed, regardless of citizenship or residency status. Those who work in the industry must be policed if we are to protect real estate consumers from dishonest conduct — no matter the characterization of the individual who is the source of the service. Issuing licenses to all honest individuals operating as agents in California and controlling them through the DRE’s present structure (as they did before the early 1990s) is better than adding a requirement for escrow officers to verify (police) licensing before disbursing broker fees.

Related topics:

Posted by ft Editorial Staff | Apr 10, 2012 | Change The Law, Real Estate | 0

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

The DRE repealed its Licensee Code of Ethics in 1996 under pressure from deregulation hawks. Resurrecting the DRE code of ethics will provide a background of ethical conduct, regulated by the DRE, for every broker and sales agent licensed in the state of California, regardless of union affiliation.

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

Related topics:

Posted by ft Editorial Staff | Apr 10, 2012 | Change The Law, Real Estate | 0

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

Property owners must be able to freely transfer property and buyers take title subject to any encumbrances of record (as they could before lender de-regulation in 1982) without title being fettered and sales inhibited by lender interference. Lenders should not be able to seize the opportunity on receipt of a request for a beneficiary statement to increase their portfolio yields by exacting assumption fees and modifying interest rates, payment schedules, due dates, etc. simply because the property is security for a mortgage.

Related article:
The unfair advantage lenders take: a call for change

Related topics:

Posted by ft Editorial Staff | Apr 7, 2012 | Change The Law, Real Estate | 0

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

Prospective homeowners (especially those taking the leap from tenancy to first-time homeownership) need to be educated on the true cost of owning a home as a standard matter of course. An SFR’s operating data is known and readily available to the seller and his listing agent, is not known to the buyer, and if it were known might alter the buyer’s pricing of the property on a comparison of its operation costs with other available properties. This disclosure would be similar to the Annual Property Operating Data (APOD) commonly used for income properties. [See first tuesday Form 306]

Related topics:

Posted by ft Editorial Staff | Apr 10, 2012 | Change The Law, Real Estate | 2

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

Brokers and agents do not currently have to disclose their knowledge of any tax consequences of a real estate transaction to their principal client, even if they are aware of the repercussions; repercussions which exist in every real estate sale. This legislation would mandate the disclosure to a client of known tax aspects of a transaction in an effort to combat the wide-spread phenomenon of the “dumb agent” — the agent who, despite his knowledge, is legally allowed to remain silent about consequences known to him in a transaction.  A preprinted, boilerplate advisory to see another professional if you have concerns about the tax aspects of a transaction does not disclose the agent’s knowledge, which if disclosed might affect the client’s decisions – and thus is a material fact deceitfully omitted.

Related topics:

Posted by ft Editorial Staff | Feb 1, 2012 | Licensing and Education, New Laws, Real Estate, Your Practice | 0

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

This legislation specifies how a real estate broker employing agents may appoint branch office managers and points out the responsibilities of an appointed manager.

Business and Professions Code §10164, 10165
Added by S.B. 510
Effective: July 1, 2012

An employing broker, or a corporate designated broker, may appoint a real estate licensee as the office manager of a branch of the employing broker’s real estate business. A licensee may not be appointed as an office manager if the licensee:

• holds a restricted Department of Real Estate (DRE) license;
• is or has been debarred by the DRE; or
• is a salesperson with less than two years of full-time real estate experience within five years before the appointment. [For more information on DRE debarment, see the January 2012 first tuesday legislative watch, Broker responsibilities related to debarred licensees.]

To appoint an office manager, the employing broker and the office manager must enter into a written employment contract, a copy of which the employing broker must retain in his files. [See first tuesday Form 510]

On employing an office manager, the broker must notify the DRE by preparing a form provided by the Real Estate Commissioner.

Editor’s note – Though first tuesday already makes available Form 510 — Office Manager Employment Agreement to document the broker-office manager employment contract, the DRE is still in the process of creating an electronic form system to comply with DRE notification requirements. Employing brokers will be able to access the electronic form through the existing e-Licensing online portal and use it to notify the DRE of a branch office manager’s appointment, termination or change in appointment. The electronic form system is scheduled to be completed before Calif. Business and Professions Code §10164, 10165 becomes effective on July 1, 2012 and as early at May 2012.

On termination or change in the appointment of an office manager, the employing broker must immediately notify the DRE commissioner in writing.

The duties of the appointed office manager may include the following:

• overseeing day-to-day operations;
• supervising the licensed activities of licensees; and
• managing clerical staff employed in the branch office or division.

The DRE commissioner may suspend or revoke the license of an appointed office manager who fails to properly supervise the licensed activities of a branch office. Also, the DRE commissioner may suspend or revoke the license of any licensee for violating this section.

This section shall not be interpreted to limit an employing broker’s responsibility to supervise the licensed activities of salespersons in his employment or to supervise the activities of the business which require a real estate license.

Related topics:
broker supervision, new laws 2011

Posted by ft Editorial Staff | Sep 24, 2012 | Licensing and Education, New Laws, Real Estate | 1

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

Thinking about becoming a DRE broker?  The education in lieu of experience requirement is changing. Read on!

Business and Professions Code § 10150.6

Added by AB 1718

Effective Date: January 1, 2013

In order for a Department of Real Estate (DRE) broker license applicant to qualify for the DRE broker exam with education in lieu of the two years’ full-time DRE salesperson experience, the applicant must now show proof of a four-year degree with a major or minor in real estate.

Related topics:
brokers, licensing

Posted by Giang Hoang-Burdette | Feb 1, 2012 | Licensing and Education, New Laws, Real Estate | 0

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

This law re-defines “good standing” as used to calculate whether a licensee has met the Department of Real Estate’s (DRE’s) 70/30 continuing education exemption.

Calif. Code of Regulations §3012.3; Business and Professions Code §10170.8
Effective: August 31, 2011

An individual who is at least 70 years old and has held a Department of Real Estate (DRE) license in good standing for at least 30 continuous years may submit paperwork to the DRE for an exemption from the DRE continuing education requirement, called the 70/30 rule.

A license is in good standing if it has not been suspended, revoked or restricted due to disciplinary action, and has been renewed on time or renewed late within the statutory two-year grace period. If a license is renewed within the grace period, the time in which the license is temporarily expired before it is renewed counts towards calculating the 30-year requirement.

Related topics:
continuing education (ce), new laws 2011

Posted by Carrie B. Reyes | Mar 1, 2012 | Commercial, Investment, New Laws, Real Estate | 0

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

This notice modifies former guidelines for tax deductions on recently built energy-efficient commercial buildings.

Internal Revenue Code §179D

Amended by Notice 2012-22

Effective date: March 12, 2012 – December 31, 2013

Energy-efficient improvements placed in service on commercial buildings between February 24, 2012 and December 31, 2013 qualify for tax deductions if the improvements show a 50% total energy reduction compared to minimum set requirements.

If an energy-efficient building does not meet the 50% energy reduction standard, a partial deduction may be taken if energy savings total at least:

• 25% for interior lighting systems;
• 15% for heating, cooling, ventilation and hot water systems; and
• 10% for the building envelope; OR
• 20% for interior lighting systems;
• 20% for heating, cooling, ventilation and hot water systems; and
• 10% for the building envelope.

This partial deduction cannot exceed $0.60 x square footage for each energy efficient system. Further, the total partial deductions cannot exceed the difference between $1.80 x square footage of the building and the amount of energy efficiency deductions allowed for all prior taxable years.

Editor’s note – This change allows energy-efficient buildings to qualify more easily for partial deductions, as the new notice increases the minimum for interior lighting systems and decreases the minimum for HVAC and ventilation systems, which are more difficult to make energy-efficient than lighting systems.

Related topics:
property tax

Posted by Ed Gauronski | Oct 25, 2012 | New Laws, Real Estate | 0

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

Disputes regarding easement maintenance costs can now be settled in small claims courts.

Civil Code §845
Amended by A.B.  1927
Effective date: January 1, 2013

Costs of repairing or maintaining easements are to be shared in proportion to their use by the owner of the servient tenement and the owner of the dominant tenement. An owner is now able to sue a nonpaying owner in small claims court to collect for the cost of the repairs or maintenance. The action may be brought before, during or after the maintenance or repairs have been completed.

All actions are subject to small claims court jurisdictional limits. Disputes not eligible for small claims court must be filed in a superior court and resolved by judicial arbitration. If court jurisdiction is not set forth in a preexisting maintenance agreement, the action must be brought in the county where the easement is located.

The apportionment of future maintenance or repair costs is not affected by a court judgment unless clarification of apportionment is specifically requested.

 

Related topics:
easements

Posted by Jeffery Marino | Dec 20, 2012 | Laws and Regulations, Loan Products, Real Estate | 7

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

In the world of high finance, it looks like hell has frozen over. Three British nationals working in the UK were recently arrested following an investigation into their involvement in the Libor scandal.

The London interbank offered rate (Libor) is used primarily as the interest rate banks charge one another for loans. Because interbank lending is the foundation for the cost of lending to consumers, Libor is also used as a benchmark for a multitude of financial dealings, including the adjustable rate mortgage (ARM).

Barclays was fined $435 million this July for its involvement in the scandal. As many as 16 other banks, including the big boys in America, remain under scrutiny.

The three arrests this week mark the first criminal action to be taken against individuals involved in the Libor debacle.

Related article:

Libor and you — a match made in . . .

first tuesday insight

Journalist Matt Taibbi calls it griftopia: a fantastical land where bankers and financiers perpetrate heinous crimes, grifting innocents out of their homes, and walk away with total impunity.

Some have said the reason why the titans of finance have not been held personally liable is a matter of market stability. Just as the banks are too big to fail, the individual bankers are too big to jail.

Another possible reason for the failure to prosecute has to do with corporate personhood. Modern corporate law was designed to protect the assets of individual owners of corporations. The design was thought to encourage business development and risk-taking in our society.

Unfortunately, asset protection has turned into cover-your-ass protection ­— in an effort to encourage risk taking, the law has allowed those risks to become criminal without holding any one person accountable.

Related article:

U.S. sues BofA for reckless lending scheme

That is, it seems, until now? We are dubious for two reasons: the identities of those arrested for their connection to the Libor scandal have been suppressed. In other words, the powers that be are not making an example of anyone here. Second, the arrests occurred under the jurisdiction of the UK authorities.

We’ll believe the tides are turning in the direction of American financial justice when Brian Moynihan or Jamie Dimon are hauled off to the stocks. The deterrent factor is real; criminal prosecution of bad actors is good for the markets. Some have suggested bringing back the guillotine . . .

Re: UK authorities arrest 3 in Libor rate manipulation investigation

 

 

Related topics:
adjustable rate mortgage, libor

Posted by ft Editorial Staff | Jan 1, 2012 | New Laws, Real Estate | 0

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

These rules specify the standards and procedures for handling the documents and fees related to the sale or transfer of condominium units in a residential common interest development (CID).

Civil Code §1368, 1368.2

Added by A.B. 771
Effective: January 1, 2012

Before the sale or transfer of a common interest development (CID) unit, the owner of the unit is now required to provide a prospective purchaser with a copy of the minutes for homeowners’ association (HOA) meetings (excluding meetings held by the board of directors in executive session) which took place in the last 12 months and were approved by the board of directors.

Upon an owner’s written request, the HOA must provide the owner (or a recipient authorized by the owner) with a copy of the documents specified in the owner’s request within 10 days of the mailing or delivery of the request. The requested documents may include any of those documents the owner is required to provide a prospective purchaser.

If the documents are maintained in electronic form, they may be posted on the HOA website. The owner also has the option of receiving the documents electronically, without an additional fee.

The HOA may collect a fee for the cost of preparing and delivering the requested documents. However, upon receipt of the owner’s written request for the documents, the HOA must first provide the owner (or a recipient authorized by the owner) with a written or electronic estimate of the fee on the form described in CC §1368.2. [For more information on the form which fulfills this request for HOA documents, see the February 2012 first tuesday form of the month, Request for HOA documentation.]

Editor’s note – The form required of an HOA is to the advantage of the prospective buyer of a CID unit, since it provides more transparency in the transaction process. [Click here to download a free copy of first tuesday Form 135, the updated Request for Homeowner Association Documents.] 

The HOA must distinguish the fee for providing the documents from any costs associated with the sale or transfer of the interest and may not withhold delivery of the documents for any reason unless payment of the fee for providing the documents is not received.

The HOA may contract with any person or entity in order to perform any of the requirements specified in this section.

Related topics:
common interest development (cid), homeowners association (hoa), new laws 2011

Posted by ft Editorial Staff | Jan 1, 2012 | New Laws, Real Estate | 0

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

This law provides for existing easements on tax-defaulted property to remain on title when the property is sold.

CA Revenue & Taxation Code §3712

Amended by A.B. No. 261
Effective January 1, 2012

When tax-defaulted property is sold, the deed conveys title to the purchaser free of all encumbrances existing before the sale except easements of any kind, including prescriptive easements.

Related topics:
easements, new laws 2011

Posted by Carrie B. Reyes | Nov 21, 2012 | New Laws, Real Estate | 2

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

Looking for energy rebate programs? This new law clarifies eligibility for solar water heating system rebates.

Public Utilities Code §§ 2861, 2863, 2867.1

Amended by AB 2249

Effective date: July 1, 2013

The Solar Water Heating and Efficiency Act of 2007 promotes the use of solar technologies to reduce natural gas demand. The Act seeks to install 200,000 solar water heating systems throughout California by 2017. Rebates and incentives are available to installers of solar water heating systems.

Installers qualified for solar water heating system rebates now include:

• owners of:
  • single family residences (SFRs);
  • multifamily residential properties;
  • commercial properties; and
  • industrial properties;
• government entities;
• nonprofit companies; and
• primary, secondary and post-secondary educational customers.

However, this law clarifies that a solar water heating system does not include single-family residential solar pool heating systems.

Editor’s note – Where can qualifying property owners find these rebates? Visit the California Public Utilities Commission website for more information.

The Act is set to expire in 2017, so make sure to get your solar water heater rebate while you have the chance! Federal subsidies for solar power are also quickly dwindling and will drop considerably by 2014, expiring completely in 2016.

Related topics:

Posted by Carrie B. Reyes | Mar 1, 2012 | New Laws, Real Estate | 0

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

This rule clarifies the Department of Housing and Urban Development (HUD)’s programs are available to all eligible individuals regardless of their sexual orientation, gender identity or marital status.

Amended by Office of the Secretary of the HUD

24 Code of Federal Regulations §§5, 200, 203, 236, 400, 570, 574, 882, 891, 982

Effective date: March 5, 2012

The following updated definitions apply to all Department of Housing and Urban Development (HUD) and Federal Housing Administration (FHA) programs and lenders, and to the regulations for Housing Opportunities for Persons with AIDS (HOPWA), Supportive Housing for the Elderly and Supportive Housing for Persons with Disabilities programs:

• sexual orientation is defined as homosexuality, heterosexuality and bisexuality;
• gender identity is defined as actual or perceived gender-related characteristics;and
• family now includes households regardless of actual or perceived sexual orientation, gender identity or marital status.

Eligibility for HUD housing programs is determined without regard to actual or perceived sexual orientation, gender identity or marital status.

Inquiries regarding sexual orientation or gender identity to determine eligibility for HUD housing programs are prohibited, except when the information is needed to determine the minimum number of bedrooms HUD’s housing programs provide each household in temporary emergency shelters.

HUD plans to implement education and outreach on this rule to recipients of HUD funding.

For steps on how to pursue a discrimination claim under this rule, see HUD’s guidelines.

Editor’s note – first tuesday supports these changes as positive steps forward in providing fair housing for all. [For more information on first tuesday’s take on these new regulations, see the February 2012 first tuesday article, HUD acts to house lesbian, gay, bisexual and transgender (LGBT) people.]

Related topics:

Posted by Carrie B. Reyes | May 22, 2012 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A property owner purchased an undeveloped, landlocked parcel. The seller and his broker incorrectly told the owner an easement existed allowing access to the property via a driveway crossing an adjacent neighbor’s property. The property owner began to develop his parcel using the driveway. The neighbor accused the property owner of trespassing.

Claim: The property owner sought to establish an equitable easement over the homeowner’s property, claiming it was necessary to access his property since it was landlocked and the easement would result in little to no hardship to the neighbor.

Counter claim: The neighbor sought to prevent the establishment of the easement, claiming the property owner’s use of the driveway was not long-standing enough to merit an equitable easement since he had just begun to develop the parcel.

Holding: A California appeals court held the owner held an equitable easement over the neighboring property since long-standing use is not a condition for granting an equitable easement, and access to the driveway was necessary for the owner to access his property, causing relatively little hardship for the neighbor.

Also at issue in this case:

Facts: A property owner held an equitable easement to access his property over his neighbor’s driveway. The recorded easement caused no economic hardship for the neighbor.

Claim: The neighbor sought monetary compensation for providing the easement, claiming he deserved compensation for allowing the property owner’s use of his land since a recorded easement usually results in compensation.

Counter claim: The property owner claimed the neighbor was not entitled to compensation since the neighbor experienced no hardship from the easement, as the neighbor’s property value was unaffected.

Holding: A California court of appeals held the neighbor is not entitled to money compensation from the property owner for his use of the easement since the neighbor did not demonstrate any lost property value resulting from the easement. [Tashakori v. Lakis (2011) 196 CA 4th 1003]

Editor’s note – An equitable easement is formed if three factors are present:

• the easement is the result of an encroachment which is innocent;
• the party seeking the easement will suffer irreparable injury if he is not granted the easement; and
• the party forced to allow the easement will suffer relatively little to no hardship.

If an equitable easement is granted, the property owner benefiting from the easement does not owe compensation to the burdened property owner, unless the burdened owner can demonstrate his property value has been diminished by the easement.

Related topics:
easements,

Posted by Sarah Cantino | Mar 28, 2012 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

A city adopted a zoning ordinance establishing a senior housing district which prevented existing senior-only mobile home parks within the district from converting to all-age housing. An owner of a senior-only mobile home park within the district sought permission to offer all-age housing, claiming the designation of his park as permanent  senior-only housing was invalid since it violated the Fair Housing Amendments Act of 1988 (“FHAA”) by requiring him to discriminate on the basis of familial status. The city claimed the park’s zoning designation as senior housing was valid since it fell under the FHAA’s senior exemption.  A California appeals court held the senior housing zoning preventing conversion to all-age housing was enforceable and did not violate the FHAA since senior housing zoning is exempt from age discrimination under the FHAA. [Putnam Family Partnership v. City of Yucaipa, California (2012) __ CA4th __]

Forms — first tuesday Form 350, Client Profile – Confidential Personal Data Sheet.

Related topics:

Posted by ft Editorial Staff | Feb 7, 2012 | New Laws, Real Estate | 0

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

See all new real estate laws passed in the 2011-2012 state and federal legislative sessions.

Topics:

1. Terms and statements fulfilling real estate license designation requirements
2. Conditions for appointing branch office managers
3. DRE’s “good standing” definition includes two-year grace periods
4. Rules for individual DRE licensees using nicknames

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Reported by Tara Tran

These amendments define the terms and statements which can be used in the license designations required of real estate licensees and industry professionals in advertisements and other materials distributed to the public.

DRE Regulation Article 9 Section 2770.1
Amends Article 9 and Section 2770.1
Effective: October 26, 2011

Terms and statements fulfilling real estate license designation requirements

If a Department of Real Estate (DRE) licensee publishes, circulates or distributes material in a newspaper, periodical or mailing related to his real estate-related activities which require a license, the licensee must include with the material a license designation disclosing he is performing activities which require a license. (These materials exclude classified rental advertisements listing the telephone number or address of the rental property.) [Calif. Business and Professions Code §10140.6 (a)(c)]

Use of the following terms and abbreviations, or similar terms and abbreviations, fulfill the license designation required in Calif. Business and Professions Code §10140.6 (a)(c): 

• broker;
• agent
• Realtor;
• loan correspondent;
• bro.; or
• agt.

However, use of the terms and abbreviations above does not fulfill the license designation required of:

• a licensee or mortgage loan originator (MLO) disclosing his DRE number or Nationwide Mortgage Licensing System (NMLS) identifier in any advertisement distributed primarily in California [Calif. Business and Professions Code §10235.5]; and

a person, placing a loan advertisement distributed primarily in California, disclosing the license under which the loan will be arranged and the state regulatory entity supervising the loan transaction (if the advertisement is related to unlicensed lending activity, the license designation must disclose the loan would be arranged by an unlicensed person not supervised by a state regulatory entity). [Bus & P C §17539.4].

DRE Regulation Article 16 Section 2847.3
Amends Article 16 and Section 2847.3
Effective: October 26, 2011

Use of either of the following statements fulfills the requirements of Business and Professions Code §10140.6(a)(c), §10235.5 and §17539.4 explained above in Article 16 Section 2847.3:

• Real estate broker, California Department of Real Estate; or
• California Department of Real Estate, real estate broker.

A dash (–) may be used in place of the comma in either of the statements above. The type size of either of the statements must be no less than the smallest type size used in the advertisement copy.

The word “California” may be abbreviated as “CA,” “CAL” or Calif” and the word “Department” may be abbreviated as “Dept.”

Editorial note – Calif. Business and Professions Code §17539.4 does not apply to banks, bank holding companies, savings associations, federation associations, industrial loan companies, credit unions or any subsidiary or affiliate of these entities if any of these entities are not licensed. Thus, neither DRE Regulation Article 9 Section 2770.1 nor DRE Regulation Article 16 Section 2847.3 apply to any of these mortgage banking entities.

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Reported by Tara Tran

This legislation specifies how a real estate broker employing agents may appoint branch office managers and points out the responsibilities of an appointed manager.

Conditions for appointing branch office managers

Business and Professions Code §10164, 10165
Added by S.B. 510
Effective: July 1, 2012

An employing broker, or a corporate designated broker, may appoint a real estate licensee as the office manager of a branch of the employing broker’s real estate business. A licensee may not be appointed as an office manager if the licensee:

• holds a restricted Department of Real Estate (DRE) license;
• is or has been debarred by the DRE; or
• is a salesperson with less than two years of full-time real estate experience within five years before the appointment. [For more information on DRE debarment, see the January 2012 first tuesday legislative watch, Broker responsibilities related to debarred licensees.]

To appoint an office manager, the employing broker and the office manager must enter into a written employment contract, a copy of which the employing broker must retain in his files. [See first tuesday Form 510]

On employing an office manager, the broker must notify the DRE by preparing a form provided by the Real Estate Commissioner.

Editor’s note – Though first tuesday already makes available Form 510 — Office Manager Employment Agreement to document the broker-office manager employment contract, the DRE is still in the process of creating an electronic form system to comply with DRE notification requirements. Employing brokers will be able to access the electronic form through the existing e-Licensing online portal and use it to notify the DRE of a branch office manager’s appointment, termination or change in appointment. The electronic form system is scheduled to be completed before Calif. Business and Professions Code §10164, 10165 becomes effective on July 1, 2012 and as early at May 2012.

On termination or change in the appointment of an office manager, the employing broker must immediately notify the DRE commissioner in writing.

The duties of the appointed office manager may include the following:

• overseeing day-to-day operations;
• supervising the licensed activities of licensees; and
• managing clerical staff employed in the branch office or division.

The DRE commissioner may suspend or revoke the license of an appointed office manager who fails to properly supervise the licensed activities of a branch office. Also, the DRE commissioner may suspend or revoke the license of any licensee for violating this section.

This section shall not be interpreted to limit an employing broker’s responsibility to supervise the licensed activities of salespersons in his employment or to supervise the activities of the business which require a real estate license.

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Reported by Giang Hoang-Burdette

This law re-defines “good standing” as used to calculate whether a licensee has met the Department of Real Estate’s (DRE’s) 70/30 continuing education exemption.

DRE’s “good standing” definition includes two-year grace periods

Calif. Code of Regulations §3012.3; Business and Professions Code §10170.8
Effective: August 31, 2011

An individual who is at least 70 years old and has held a Department of Real Estate (DRE) license in good standing for at least 30 continuous years may submit paperwork to the DRE for an exemption from the DRE continuing education requirement, called the 70/30 rule.

A license is in good standing if it has not been suspended, revoked or restricted due to disciplinary action, and has been renewed on time or renewed late within the statutory two-year grace period. If a license is renewed within the grace period, the time in which the license is temporarily expired before it is renewed counts towards calculating the 30-year requirement.

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Reported by Giang Hoang-Burdette

This law clarifies DRE licensee use of nicknames in the practice of real estate.

Rules for individual DRE licensees using nicknames

Calif. Code of Regulations §2731
Effective: September 10, 2011

An individual who is a Department of Real Estate (DRE) licensee may use a nickname in place of his legal first name in his real estate practice, provided the nickname is accompanied by his last name and his DRE license number.

Related topics:
license

Posted by Ed Gauronski | Jul 27, 2012 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A buyer used funds from an S corporation of which he was the only shareholder to purchase property vesting in the name of the corporation and used as his principal residence. The buyer claimed a first-time homebuyer credit on his individual tax return.

Claim: The Internal Revenue Service (IRS) issued a notice of deficiency, claiming the buyer was not entitled to the first-time homebuyer tax credit since such a benefit is limited to individuals and the property was purchased in the name of an entity, not an individual.

Counter claim: The buyer claimed he was entitled to first-time homebuyer credit since he is the sole shareholder of the S corporation through which the home was purchased.

Holding: A federal tax court held the buyer did not qualify for first-time homebuyer tax credit since the property was vested in the name of an entity and first-time home buyer credit applies only to individuals. [Trugman v. Commissioner of Internal Revenue (May 21, 2012)_TC_]

Editor’s note: An S corporation is distinct from its shareholders, thus nullifying the individual shareholder’s entitlement to the first-time homebuyer tax credit since the property was vested in the name of the entity. Similarly, property owned by an S corporation cannot be considered a “principal residence” as a corporation cannot occupy a residence; rather, it operates as a place of business.

To take advantage of the first-time homebuyer tax credit, the buyer should have been advised by his agent to take the purchase funds from the S corporation, a pass-through entity, as a withdrawal for his personal account. Further, the buyer should have taken title to the property in his own name, not that of the S corporation. This is a tax-free maneuver which would have made the buyer eligible for the tax deduction.  

Related topics:

Posted by ft Editorial Staff | Mar 1, 2012 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

A homeowner filed a petition for Chapter 13 bankruptcy protection, listing his negative equity property as his principal residence. The homeowner later converted his petition to Chapter 11 and listed the property as investment property since it was now rented and the homeowner lived elsewhere. The homeowner sought to reduce the principal owed on his mortgage to the property’s appraised value, a cramdown. The lender opposed the homeowner’s motion to cramdown the mortgage balance, claiming its lien was protected from modification since the property was listed as the homeowner’s principal residence in the initial filing and thus barred from modification. The homeowner claimed the mortgage was eligible for modification since the homeowner listed the property as investment property on converting his petition to Chapter 11. The bankruptcy appeals court held the homeowner is barred from modification of the mortgage since its eligibility for modification is established on the date of the original petition in bankruptcy and that petition listed the property as his principal residence. [In re: Abdelgadir (August 16, 2011) 455 BR 896]

Related topics:
bankruptcy, cramdowns,

Posted by ft Editorial Staff | Sep 24, 2012 | New Laws, Real Estate | 0

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

Military service members now have a longer foreclosure protection period following the end of service.

Military and Veterans Code § 408

Added by AB 2475

Effective Date: January 1, 2013

The sale, foreclosure or seizure of real or personal property subject to a mortgage or other security originated prior to an individual’s period of military service is prohibited within the nine months following the end of the individual’s military service.

Related topics:
calvet

Posted by Sarah Cantino | Jul 19, 2012 | Finance, Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A borrower entered into a loan with a lender to purchase rental property to lease to a tenant. The loan agreement stated the loan would become recourse if the landlord or tenant terminated or cancelled any future lease for the property without the prior written consent of the lender. As a condition of funding, a guarantor signed a guarantee agreement, accepting liability for payment of the loan in the event it became recourse. The borrower entered into a lease agreement with a tenant. The tenant later abandoned the property and stopped paying rent, causing the borrower to default. The lender foreclosed on the property and it was sold for less than the outstanding balance. The lender sought payment of the deficiency from the guarantor.

Claim: The guarantor claimed he was not liable for the deficiency since the triggering event causing the loan to become recourse never occurred as the lease was never terminated, but only breached by the tenant.

Counter claim: The lender claimed the guarantor was liable for payment of the deficiency since the tenant’s abandonment of the property was akin to terminating the lease, triggering the recourse nature of the loan.

Holding: A California appeals court held the guarantor was not liable since the tenant did not terminate the lease, but rather breached it, and thus the loan never became recourse. [GECCMC 2005-C1 Plummer Street Office Limited Partnership v. NRFC NNN Holdings, LLC (2012) 204 CA4th 998]

Editor’s note: Realizing the loan agreement allowed the tenant to expose the landlord to recourse liability, the landlord safeguarded himself with a provision in the lease barring the tenant from terminating or cancelling the lease, reserving this authority to the landlord alone.

When the tenant abandoned the property, the lender assumed the act terminated the lease. However, the tenant had  no power to terminate the lease without the landlord’s consent, and any attempt on his part to do so was considered a mere breach of the lease, not a termination or cancellation. Since the landlord never approved the tenant’s attempt to cancel the lease, the lease remained in effect even after the property was abandoned, effectually protecting the landlord from a deficiency judgment from the lender.

Forms — first tuesday Form 418-5; first tuesday Form 439

Related topics:
landlord, lease, lender, tenant

Posted by Carrie B. Reyes | Feb 22, 2012 | Laws and Regulations, Real Estate | 6

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

The U.S. Department of Housing and Urban Development (HUD) recently announced regulations providing all eligible persons, regardless of sexual orientation or gender identity, be considered for HUD’s core housing programs.

The HUD Secretary reported that 40% of homeless youth identify as lesbian, gay, bisexual or transgender (LGBT), and half of those have claimed their homelessness occurred as a result of being denied access to housing due to their sexual orientation. Further, one in five transgender people have been refused housing due to gender identity discrimination. It is due to troubling statistics such as these that HUD has undertaken its work to advance the civil rights of all buyers/renters.

The regulations include the following provisions:

• owners and operators of HUD-assisted or HUD-insured housing are required to make their housing accessible without taking sexual orientation or gender identity into account, and are prohibited from asking about those identities;
• lenders are prohibited from considering sexual orientation or gender identity when determining a borrower’s eligibility for Federal Housing Administration (FHA)-insured financing;  and
• LGBT couples and individuals are now explicitly included under the term “family” as beneficiaries of HUD’s programs.

HUD also requires recipients of its discretionary funds, including non-profit organizations and local agencies, to obey their local and state non-discrimination laws. [For more information regarding civil rights in the housing industry, see the November 2011 first tuesday article, A new age for fair housing.]

These new regulations become effective March 2012.

first tuesday take:The beginning of fair housing in practice?  People often want to hate, or at least classify others so as to look down on them and bolster an imagined superiority.  Oh yes, laws exist against acting out these deeply-held prejudices.

Government is good at many things, and clearing up pollution in rivers, lake and minds is one of them.  Everyone is more comfortable afterward.  Once done, government moves on.

These new regulations will be digested in next month’s Legislative Watch.

RE: “HUD Secretary Donovan announces new regulations to ensure equal access to housing for all Americans regardless of sexual orientation or gender identity;” “Ending housing discrimination against LGBT Americans;” and “A place to call home” from the U.S. Department of Housing and Urban Development

Related topics:

Posted by ft Editorial Staff | Jul 19, 2012 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A local agency established an improvement district for improvements to benefit all properties located within the district. The engineering firm hired for the project prepared a report allocating portions of the cost of the improvements to each property based on the benefits each would receive. The report allocated an improper dollar amount of benefits to the agency-owned property. The property owners and agency voted on the creation of the district, with each vote weighted according to the allocation of the costs to be levied against the property, based on the engineer’s report. Under the weighted voting, the improvement district was approved.

Claim: A homeowners’ association (HOA) within the district sought to invalidate the establishment of the improvement district, claiming the votes were improperly weighted since the proposed allocation to agency-owned property was greater than the benefits conferred on it, thus improperly affecting the results of the voting.

Counter claim: The agency claimed the votes were properly weighted since the agency relied on the allocation of costs indicated in the engineer’s report.

Holding: A California appeals court held the local agency’s establishment of an improvement district, based on votes weighted according to an improper dollar amount of improvements to be conferred on each property, was invalid since the votes by the agency-owned property were given extra weight, inaccurately tipping the vote in favor of the improvement district. [Golden Hill Neighborhood Association v. City of San Diego (2011) 199 CA4th 416]

Related topics:
property assessment

Posted by ft Editorial Staff | Feb 2, 2012 | New Laws, Real Estate | 0

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

See all new real estate laws passed in the 2011-2012 state and federal legislative sessions.

Topics:

1. Broker management of trust fund account placement
2. Documents and fees required in the sale of interest in a CID
3. Prohibitions against housing discrimination based on genetic information
4. Real estate licensees and appraisal management companies may not improperly influence appraisers
5. Residence of surviving spouse of veteran confined to care facility exempt from property taxes
6. Tax exemptions for surviving spouse of disabled veterans terminate upon remarriage
7. Broker responsibilities related to debarred licensees
8. Easements remain after property tax sale
9. Procedure for disputing the sale of tax-defaulted property
10. CEQA requirements for city or county projects
11. Landlord may not prohibit political signs

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Reported by Tara Tran

These regulations define a real estate broker’s proper handling of trust funds for his client 

DRE Regulation Article 15 Section 2830

Effective: October 26, 2011

Broker management of trust fund account placement

An agency relationship exists between a real estate broker and a client for whom the broker holds trust funds. In this relationship, the broker owes a fiduciary duty to the client. A benefit the broker receives related to the handling of a client’s trust funds belongs to the client and must be passed to the client.

Without possession of written permission from the client, it is unlawful for a real estate broker or corporate broker to directly or indirectly receive personal or professional fees, compensation or consideration from a person or institution other than the client as inducement for trust fund account placement.

Without possession of written permission from the client, the following activities performed directly or indirectly by a person are considered inducements for trust fund account placement and are unlawful:

• receiving or requesting payment for, provision of or assistance with business expenses, including but not limited to rent, employee salaries, furniture, copiers, facsimile machines, automobiles, telephone service or equipment or computers;
• receiving or requesting consideration intended for the benefit of the broker rather than the trust account, including cash, below market rate loans, automobile charges, merchandise or merchandise credits;
• receiving or requesting to receive on behalf of the broker or corporation, compensating balances or benefits in the pricing or fees for the maintenance of a compensating balance account (a “compensating balance” is defined as the balance maintained in a checking account or other account in a bank or recognized depository in the name of a real estate broker for the purpose of paying bank fees on a separate trust fund account);
• receiving or requesting all or any part of the time or effort of an employee of the bank or other recognized depository for a service unrelated to the trust account; and
• receiving or requesting expenditures for food, beverages and entertainment.

Receipt or request of the following does not violate law:

• promotional items with a permanently affixed company logo of the bank or recognized depository with a value of $10 or less for each item (items exclude gift certificates, gift cards or other items with a specific monetary value on its face, or that may be exchanged for any other item having a specific monetary value); and
• education or educational materials related to the business of trust fund management provided continuing education credits are not given.

It is presumed unlawful to receive or request any form of consideration as an inducement for the placement of a trust account if the consideration is not specifically set forth in this section.

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Reported by Tara Tran

These rules specify the standards and procedures for handling the documents and fees related to the sale or transfer of condominium units in a residential common interest development (CID).

Documents and fees required in the sale of interest in a CID

Civil Code §1368, 1368.2

Added by A.B. 771
Effective: January 1, 2012

Before the sale or transfer of a common interest development (CID) unit, the owner of the unit is now required to provide a prospective purchaser with a copy of the minutes for homeowners’ association (HOA) meetings (excluding meetings held by the board of directors in executive session) which took place in the last 12 months and were approved by the board of directors.

Upon an owner’s written request, the HOA must provide the owner (or a recipient authorized by the owner) with a copy of the documents specified in the owner’s request within 10 days of the mailing or delivery of the request. The requested documents may include any of those documents the owner is required to provide a prospective purchaser.

If the documents are maintained in electronic form, they may be posted on the HOA website. The owner also has the option of receiving the documents electronically, without an additional fee.

The HOAmay collect a fee for the cost of preparing and delivering the requested documents. However, upon receipt of the owner’s written request for the documents, the HOA must first provide the owner (or a recipient authorized by the owner) with a written or electronic estimate of the fee on the form described in CC §1368.2. [For more information on the form which fulfills this request for HOA documents, see the February 2012 first tuesday form of the month, Request for HOA documentation.]

Editor’s note – The form required of an HOA is to the advantage of the prospective buyer of a CID unit, since it provides more transparency in the transaction process. [Click here to download a free copy of first tuesday Form 135, the updated Request for Homeowner Association Documents.] 

The HOA must distinguish the fee for providing the documents from any costs associated with the sale or transfer of the interest and may not withhold delivery of the documents for any reason unless payment of the fee for providing the documents is not received.

The HOA may contract with any person or entity in order to perform any of the requirements specified in this section.

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Reported by Tara Tran

This legislation adds to the California Unruh Civil Rights Act and Fair Employment and Housing Act by further prohibiting discrimination in business establishments and in housing based on genetic information.

Unruh Civil Rights Act protects genetic information

Civil Code §51

Added by S.B. 559
Effective: January 1, 2012

All persons within the jurisdiction of the state of California are entitled to full and equal accommodations, advantages, facilities, privileges or services in all business establishments regardless of their genetic information.

In this section, genetic information is defined as any of the following:

• the genetic tests of the individual;
• the genetic tests of the individual’s family members; or
• the manifestation of a disease or disorder in family members of the individual.

Genetic information includes a request or receipt for genetic services, or participation by an individual or the individual’s family members in clinical research which includes genetic services.

Fair Employment and Housing Act prohibits discrimination in housing based on genetic information

Government Code §12921

Added by S.B. 559
Effective: January 1, 2012

It is a civil right to seek, obtain and hold housing without discrimination based on genetic information.

DFEH duty to protect against genetic information-based housing discrimination

Government Code §12930

Added by S.B. 559
Effective: January 1, 2012

The Department of Fair Employment and Housing (DFEH) has the function, power and duty to issue publications and results of investigations and research which will minimize or eliminate discrimination in housing based on genetic information.

The DFEH may also provide assistance to communities and persons in resolving disputes, disagreements or difficulties relating to discriminatory practices based on genetic information.

FEH Commission duty to promote study of genetic information-based housing discrimination

Government Code §12935

Added by S.B. 559
Effective: January 1, 2012

The Fair Employment and Housing Commission (Commission) has the function, power and duty to create or provide financial or technical assistance to agencies and conciliation councils to study the problems of discrimination in housing based on genetic information.

Licensing boards may not base qualifications on genetic information

Government Code §12944

Added by S.B. 559
Effective: January 1, 2012

It is unlawful for a licensing board to require examination or establish qualification of licensing based on genetic information.

It is unlawful for a licensing board to print or circulate or cause to be printed or circulate, any publication, or make a non-job-related inquiry which expresses a limitation, specification or discrimination based on genetic information.

Unlawful acts of housing discrimination based on genetic information

Government Code §12955, §12955.8

Added by S.B. 559
Effective: January 1, 2012

It is unlawful for the owner of any housing accommodation to:

• discriminate against or harass a person based on genetic information; or
• make or cause to be made any written or oral inquiry related to the genetic information of a person seeking to purchase, rent or lease a housing accommodation.

It is unlawful for a person to:

• make, print or publish, or cause to be made, printed or published, a notice, statement or advertisement for the sale or rental of a housing which indicates preference based on genetic information;
• to discriminate against a person on the basis of genetic information (subject to the provisions of CC §51);
• induce a person to sell or rent any dwelling in order to profit, by representations regarding the entry into the neighborhood of a person or group of persons with particular genetic information;
• deny a person access, membership or participation in a multiple listing service, real estate brokerage or other service based on genetic information;
• make unavailable or deny a dwelling because of discrimination based on genetic information; or
• discriminate through public or private land use practices, decisions and authorizations based on genetic information.

It is unlawful for a person, bank, mortgage company or other financial institution that provides financial assistance for the purchase, organization or construction of housing to discriminate against a person or group of persons on the basis of genetic information.

It is unlawful for a person, organization or entity involved in a real estate-related transaction to discriminate against a person in making available a transaction or in the terms and conditions of a transaction based on genetic information.

Proof of an intentional violation of any of the above includes when genetic information is a motivating factor in committing a discriminatory housing practice, even though other factors may have also motivated the practice. Proof of a violation causing a discriminatory effect is shown in an act or failure to act based on genetic information.

Claims for restrictive covenants on property include restrictions based on genetic information

Government Code §12956.1, §12956.2

Added by S.B. 559
Effective: January 1, 2012

The cover page or stamp with which a county recorder, title insurance company, escrow company, real estate broker, real estate agent or association includes a copy of a declaration, government document or deed for a person making a claim for a restrictive covenant must state the declaration, government document or deed is void if it contains any restriction based on genetic information.

When determining if a restrictive covenant on the interest of record in property is unlawful the county counsel must also consider if the restriction is based on genetic information.

Interpreting discrimination based on genetic information

Government Code §12993    

Added by S.B. 559
Effective: January 1, 2012

The provisions established to prohibit discrimination based on genetic information do not repeal any provision in the Civil Rights Law or any other law of the state relating to discrimination based on genetic information, unless those provisions provide less protection.

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Reported by Mary Balash and Tara Tran

This regulation defines the improper influence a real estate licensee or an appraisal management company is prohibited from exercising in a real estate transaction involving an appraisal.

Real estate licensees and appraisal management companies may not improperly influence appraisers

Business and Professions Code §11345.4, California Civil Code §1090.5

Added by S.B. 6
Effective: January 1, 2012

DRE Regulation Article 11.1 Section 2785

Effective: October 26, 2011

A real estate licensee and an appraisal management company in a real estate transaction involving an appraiser may not exercise or attempt to exercise the improper influence of the development, reporting, result or review of an appraisal sought for a mortgage loan controlled by the Real Estate Settlement and Procedures Acts (RESPA). [See first tuesday Form 200]

Improper influence includes any of the following activites:

• withholding or threatening to withhold timely or partial payment for a completed appraisal report, regardless of whether a sale or financing transaction closes;
• withholding or threatening to withhold future business from an appraiser;
• demoting or terminating, or threatening to demote or terminate an appraiser;
• expressly or implicitly promising future business, promotions or increased compensation for an appraiser;
• conditioning the ordering of an appraisal report or the payment of an appraisal fee, salary or bonus based on the opinion, conclusion, valuation or preliminary value estimate requested from an appraiser;
• requesting an appraiser provide an estimated, predetermined or desired valuation in an appraisal report prior to entering into a contract or completing a report;
• requesting an appraiser provide comparable sales prior to the completion of the report;
• providing an appraiser with an estimated, predetermined or desired value for a property or a proposed or target amount to be loaned to the borrower, except that the appraiser may be handed a copy of the purchase agreement; or
• requesting the removal from an appraisal report of comments disclosing adverse property conditions or physical, functional or economic obsolescence.
• hiring an appraiser based on the valuation likely to be generated by the appraiser;

Real estate licensees are further prohibited from providing an appraiser, appraisal company or appraisal management company with stock or financial or non-financial benefits.

Appraisal management companies are further prohibited from requiring compensation from an appraiser in order for the appraiser to attain priority in the assignment of business.

Editor’s note – Civil Code §1090.5, which was adopted in 2007, already barred a person with an interest in a real estate transaction from improperly influencing an appraiser of real estate. Additional amendments which finalized the Truth in Lending Act (TILA) in 2010 also defined the improper influence of the appraisal process. DRE Regulation Article 11.1 Section 2785 above was added by the DRE to highlight heo relevance of federal legislation to the practice of real estate in California and to add to the state’s list of actions defined as the improper influence of the appraisal process. [For more information on appraisal reform legislation passed in 2010, see the December 2010 first tuesday Legislative Watch, Dodd-Frank changes to appraisal procedures; for more information on the use of appraisal management companies in response to appraisal reform legislation, see the December 2011 first tuesday article, Appraisal management to the rescue?]

Anyone with an interest in a real estate transaction may ask an appraiser to do any of the following:

• consider additional relevant property information, including information regarding comparable properties;
•  provide further explanation for the valuation;
• correct errors in the appraisal report;
• provide a copy of the sales contract with purchase transaction.
• obtain multiple valuations in order to assure reliability in value assessment;
• withhold compensation due to breach of contract or inferior service; or

Editorial note – The last point in the list above goes against the intended effect of the law. Being privy to the purchase agreement directly influences the appraiser to value the property at a price equal to or greater than the amount stated in the agreement.

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Reported by Mary Balash

These revisions exempt the principal residence of an unmarried surviving spouse of a veteran from property taxes if the unmarried spouse is confined to a care facility.

Residence of surviving spouse of veteran confined to care facility exempt from property taxes

Revenue and Taxation Code 205.5

Amended by A.B. 188
Effective 2012-2013 fiscal year

Beginning the 2012-2013 fiscal year, the principal residence of an unmarried surviving spouse of a veteran who died as a result of a service-connected disease or injury, or died while on active military duty, is exempt from property taxation if the unmarried spouse would reside in that property as a principal residence were it not for confinement to a hospital or other care facility. This exemption is conditioned upon the residence not being rented. Family members residing at the residence are not considered to be tenants.

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Reported by Mary Balash

These amendments clarify eligibility of tax exemptions for disabled veterans, and affirm the exemption terminates for the surviving spouse of a disabled veteran upon remarriage.

Tax exemptions for surviving spouse of disabled veterans terminate upon remarriage

Revenue and Taxation Code 279

Amended by A.B. 188
Effective 2012-2013 fiscal year

A principal residence becomes eligible for disabled veterans’ property tax exemption as of:

• the effective date of a disability rating;
• the date the property is purchased, provided residency is established within 90 days of  purchase;
• the date residency is established at the property by the veteran or spouse; or
• the date of the veteran’s death resulting from service-connected injury or disease, in which case the unmarried spouse receives the exemption. 

The property tax exemption is terminated when the surviving spouse remarries.

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Reported by Tara Tran

This regulation specifies the duties and responsibilities of real estate brokers regarding previously licensed persons now debarred from licensed activities by the Department of Real Estate (DRE) Commissioner.

Broker responsibilities related to debarred licensees

DRE Regulation Article 4 Section 2725.5

Effective: October 26, 2011

The Department of Real Estate (DRE) Commissioner is authorized to debar a licensed or unlicensed person from:

• employment with or management of a real estate business;
• participation in the business activity of a real estate salesperson or broker; and
• engagement in real estate-related business activity on the premises where a real estate salesperson or broker conducts business.

A broker is responsible for screening licensed and unlicensed employees, as well as regular business associates engaged in real estate-related business activity on the broker’s premises. These responsibilities include a review of the DRE’s listing of debarred persons and publication of disciplinary actions.

A broker is required to report violations to the DRE.

Editor’s note – Under Department of Real Estate (DRE) mandate, a broker is responsible for monitoring his employees, including agents. first tuesday’s CalPaces broker appreciation program assists brokers with this task. Brokers enrolled in the CalPaces program receive monthly reports of the status of all licensees the DRE has on record as working under their broker license. The reports include information on:

• an agent’s name, DRE license number and date of license expiration; and
• which agents in the prior month have enrolled in a continuing education course with first tuesday.

For more information on how brokers can participate in the CalPaces program, contact a first tuesday representative.

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Reported by Kelli Galippo

This law provides for existing easements on tax-defaulted property to remain on title when the property is sold.

Easements remain after property tax sale

CA Revenue & Taxation Code §3712

Amended by A.B. No. 261
Effective January 1, 2012

When tax-defaulted property is sold, the deed conveys title to the purchaser free of all encumbrances existing before the sale except easements of any kind, including prescriptive easements.

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Reported by Kelli Galippo

This law sets procedure for disputing the validity of a property tax sale.

Procedure for disputing the sale of tax-defaulted property

CA Revenue & Taxation Code §§3725, 3731

Amended by A.B. No. 261
Effective January 1, 2012

When a tax-defaulted property is sold and the sale is believed to be invalid or irregular, proceedings challenging the sale’s validity can be commenced if:

• the individual challenging the sale’s validity first petitions the board of supervisors within one year after the tax-defaulted property was sold; and
• the proceeding commences within one year after the board of supervisors determines a tax-defaulted property sale is valid.

These changes only apply to sales made on or after January 1, 2012.

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Reported by Kelli Galippo

This law clarifies the procedures for determining the environmental impact of city or county projects as required by the California Environmental Quality Act (CEQA).

CEQA requirements for city or county projects

CA Public Resources Code §21083.9

Amended by S.B. No. 226
Effective January 1, 2012

The adoption or amendment to a general plan by a city, county or special district may be conducted concurrently with the scoping meeting required by the California Environmental Quality Act (CEQA) for any building project of statewide, regional or area-wide significance.

Editor’s note — A general plan is a plan made by a local agency for the adoption or amendment of zoning or subdivision ordinances, improvements or other public works projects. A “scoping meeting” is a meeting organized by a city, county or special district open to the public for input about environmental information to be considered in the adoption or amendment of a general plan.

CA Public Resources Code §21084

Amended by S.B. No. 226
Effective January 1, 2012

If a project’s greenhouse gas emissions have no significant impact on the environment, the project is not necessarily exempt from CEQA requirements.

Editor’s note — The “projects” to which these laws are referring include the enactment or amendment of zoning ordinances, the issuance of zoning variances, the issuance of conditional use permits and the approval of tentative subdivision maps, excluding any actions undertaken to prevent or mitigate an emergency.

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Reported by Mary Balash

These regulations bar landlords from prohibiting the posting of political signs by tenants.

Landlord may not prohibit political signs

California Civil Code 1940.4

Added by S.B. No. 337
Effective: September 30, 2011

Landlords may not prohibit a tenant from displaying political signs in relation to:

• an election or legislative vote;
• the initiative, referendum or recall process; or
• issues elected for vote before a public body.

Tenants may display political signs on a window or door of a leased multifamily dwelling, or in a yard, window, door, balcony or wall of a leased detached single-family residence (SFR).

A landlord may prohibit a tenant from posting a political sign if the sign is:

• more than six square feet;
• in violation of local, state or federal law;
• in violation of an enforceable provision in the conditions, covenants and restrictions (CC & Rs) of a common interest development (CID).

The tenant is to remove any political signs not in compliance with reasonable time limits set for deplaying such signs (by landlord or CID), beginning no later than at least 90 days prior to the date of the election or vote to which the sign relates and ending at least 15 days following the date of the election or vote.

Related topics:

Posted by Sarah Cantino | Dec 26, 2012 | New Laws, Property Management, Real Estate | 0

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

More flexibility in 2013: electronic security deposit refunds.

California Civil Code §1950.5

Amended by A.B. No. 2521

Effective date: January 1, 2013

A residential security deposit may be refunded to the tenant electronically by mutual agreement between the landlord and the tenant.

The itemized statement of deductions from the security deposit, with copies of receipts, may be delivered via e-mail.

To be valid, the landlord and tenant must agree to these terms after either of them has given notice to terminate the tenancy.

Related topics:
landlord, rental, security deposit, tenant

Posted by Sarah Cantino | Dec 26, 2012 | New Laws, Property Management, Real Estate | 0

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

Heads up for landlords! New notice requirements regarding abandoned personal property.

California Civil Code §§1946, 1946.1 and 1950.5.

Amended by A.B. No. 2303 and A.B. No. 2521

Effective date: January 1, 2013

To terminate a periodic tenancy upon sale of the rented property, a residential property owner must serve the tenant with a notice to vacate.

A landlord must include a statement notifying residential tenants of their right to reclaim abandoned personal property in:

• residential notices to vacate [See first tuesday Forms 569, 569-1, 575, 575-1, 576 and 577]; and
• the notice of the tenant’s right to request a joint pre-expiration inspection of the property. [See first tuesday Form 567-1]

The statement must read:

“State law permits former tenants to reclaim abandoned personal property left at the former address of the tenant, subject to certain conditions. You may or may not be able to reclaim property without incurring additional costs, depending on the cost of storing the property and the length of time before it is reclaimed. In general, these costs will be lower the sooner you contact your former landlord after being notified that property belonging to you was left behind after you moved out.”

Editor’s Note — Current first tuesday students and purchasers of first tuesday Forms-on-CD 4.3 may download a FREE copy of these updated forms. Log in to your student homepage at www.firsttuesday.us using your eight-digit Department of Real Estate (DRE) license number or T-number and click,“first tuesday Forms Downloads and Updates.”

Related topics:
landlord, lease agreement, tenant

Posted by Sarah Cantino | Nov 28, 2012 | Laws and Regulations, New Laws, Property Management, Real Estate | 3

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

Updated 12-17-2012

Caution to advertising landlords: pets are simply allowed or prohibited. No picking and choosing.

Civil Code §1942.7

Added by S.B. No. 1229

Effective date: January 1, 2013

A landlord allowing tenant pets may not:

• favor declawed or devocalized animals in any advertisement;
• refuse to rent or negotiate for rent to a tenant because their pet has not been declawed or devocalized; or
• require tenants’ pets to be declawed or devocalized as a condition of renting the property.

A landlord who violates these rules is subject to up to $1,000 for each violation.

Editor’s note — Although landlords may not favor declawed or devocalized pets, they may still protect against property damage or noise by including a lease provision barring specific pet behavior or prohibiting pets altogether.

Related topics:
landlord, tenant

Posted by ft Editorial Staff | Oct 25, 2012 | Pending Laws, Real Estate | 0

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

Legislative Gossip Years: 2009 / 2010 / 2011 / 2012 / 2013Last Updated: October 25, 2012

Here’s a list of the 2012 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, most recent updates are in red.

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.

Energy Efficiency
SB 1130	AMENDED 08/07/12	This bill would require the State Energy Resources Conservation and Development commission to analyze and evaluate energy efficiency standards for nonresidential buildings.
Foreclosure
AB 1547	INTRO 01/25/12	This bill would indefinitely require a 30-day notice to be given to a borrower before a lender files a Notice of Default (NOD). This bill would also indefinitely require a tenant or subtenant of a property sold in foreclosure to be given 60 days’ written notice to quit the property before being removed.
AB 1557	INTRO 01/26/12	Until January 1, 2018, this bill would require the legal owner of a vacant residential property purchased at a foreclosure to maintain the property or face penalties up to $1,000 per day of violation.
AB 1602 and         SB 1470	AMENDED 04/10/12	This bill would: require a lender to provide documentation to the borrower establishing its right to foreclose prior to recording a notice of default (NOD); require a lender to provide documentary evidence of ownership, chain of title and documentation demonstrating the right to foreclose at the time of filing an NOD; prohibit a lender from filing an NOD or a notice of trustee’s sale (NOTS) when a timely-filed application for a loan modification or other loss mitigation measure is pending; prohibit a lender from recording an NOTS while a borrower is in compliance with the terms of a trial loan modification or other approved loss mitigation measure; and require a lender to disclose why a loan modification or other loss mitigation measure has been denied; and require a lender to personally serve a notice of foreclosure sale or postponement. (Part of the California Homeowner’s Bill of Rights)
AB 2425 and         SB 1471	AMENDED 04/10/12	This bill would require lenders to provide a single point of contact and dedicated contact information to borrowers in the foreclosure, loan modification, shortsale or other loss mitigation processes. This bill would also authorize a borrower to challenge an unlawful foreclosure commencement in court and impose a $10,000 penalty for “robosigned” documents. (Part of the California Homeowner’s Bill of Rights)
AB 2314 and         SB 1472	PASSED 08/27/12	This bill would prohibit action, including fines and penalties, against purchasers of blighted property within 60 days of purchase if repairs are diligently being made to the property. (Part of the California Homeowner’s Bill of Rights)
AB 2610 and         SB 1473	PASSED 09/25/12	This bill would extend until December 31, 2019 the rules requiring purchasers of foreclosed homes to honor terms of existing fixed-term leases, and give tenants of month-to-month rentals at least 90 days notice before beginning the eviction process, unless the new owner will occupy the home as a principal residence (Part of the California Homeowner’s Bill of Rights)
SB 1069	PASSED 07/09/12	This bill would prohibit a deficiency judgment on any refinance of a purchase money loan, except on new principal not applied to the purchase money loan, or to fees, costs or expenses of the refinance. This would become effective for purchase-money refinances executed on or after January 1, 2013.
SB 825	PASSED 08/28/12	This bill would require, until December 31, 2019, an owner-by-foreclosure who serves a notice to quit within one year after a foreclosure sale to notify the tenant receiving the notice of their potential right to remain on the property for 90 days or more on a separate cover sheet.
AB 1599	PASSED 09/11/12	This bill would require a mortgagee, trustee beneficiary or authorized agent to attach a translated summary of mortgage terms in Spanish, Chinese, Tagalog, Vietnamese and Korean to each notice of default and notice of sale of one-to-four unit residences, beginning April 1, 2013.
AB 278	PASSED 07/11/12	This bill would require until January 1, 2018 a mortgage servicer, mortgagee, trustee, beneficiary or authorized agent to contact a borrower before filing a notice of default to explore options to avoid foreclosure.
Landlording
SB 1055	PASSED 09/07/12	This bill would require a landlord accept rent payment or security deposit by at least one form of payment other than cash or electronic funds transfer.
AB 2521	PASSED 09/25/12	This bill would allow a landlord to retain, sell or destroy personal property left behind and unclaimed by a former tenant if the value of the property is less than or equal to $700. It would allow the landlord to e-mail a notice specifying how a tenant can recover personal property and the time frame for recovery.
AB 2522	AMENDED 03/29/12	This bill would prohibit the management of a mobilehome park from making a space rental agreement contingent on the mobilehome owner agreeing to an arbitration clause or waiving their right to a trial by jury as a result of a dispute between the owner and the management.
SB 1191	PASSED 09/25/12	This bill would, until January 1, 2018, require a landlord of a one-to-four unit residence who has received an NOD to disclose the NOD in writing to any prospective tenants prior to executing a lease. If the landlord violates this provision the tenant may void the lease and recover one month’s rent or twice the amount of actual damages from the landlord, all prepaid rent and any other remedies available. If the tenant does not void the lease and the foreclosure sale has not occurred, he may deduct one months’ rent from future rent obligations to the landlord.
AB 1124	PASSED 09/27/12	This bill would allow landlords to qualify for energy savings programs to repair heating or hot water systems on rental properties.
Licensees
AB 1511	PASSED 07/13/12	This bill would require all residential sale contracts entered into on or after July 1, 2013 to contain a notice specifying the locations of gas and hazardous liquid pipelines on the property.
SB 875	PASSED 08/27/12	This bill would require the DRE to obtain fingerprints from any licensee who files a petition for reinstatement of a suspended or revoked license. If the ensuing background check shows the licensee has committed a crime or been found guilty of fraud, the DRE may bar the licensee from participating in licensing examinations. This bill would also make cheating on a licensing examination a crime and the DRE may refuse to issue a license to the cheater for up to three years. It would require applicants for a mortgage loan originator (MLO) endorsement to wait at least six months between testing after failing the test three consecutive times. This bill would also exempt certain military licensees from renewing their MLO endorsement until one year after termination of their military service or until the licensing period commencing after they engage in business.
AB 1718	PASSED 08/27/12	This bill would change the education-in-lieu-of-experience prerequisite for real estate broker licenses from having a four-year college degree with a specialization in real estate to a four-year degree with a major or minor in real estate.
Mortgages
AB 1602	AMENDED 04/09/12	This bill would require lenders to provide the following documents to a homeowner at least 14 days before recording a notice of default (NOD): a deadline to file an application for loan modification;  a declaration the homeowner is not entitled to benefits under the federal Servicemembers Civil Relief Act; a declaration the lender, or authorized agent, has possession of the note and deed of trust; copies of the note and trust deed, or a declaration stating the documents cannot be located. This bill would prohibit lenders from collecting late fees or recording an NOTS while the homeowner is being considered for or is compliant with a foreclosure alternative. If passed, a lender who fails to comply with these laws would be subject to cancellation of a pending trustee’s sale or providing the homeowner compensation if the sale has been completed.
FHA Proposal	INTRO 01/20/12	This proposal would reduce the maximum allowable seller concessions to reflect industry norms. The proposal calls for a 30 day public comment period and analysis before a final rule is issued.
SB 980	PASSED 09/25/12	Until January 1, 2017, this bill would prohibit any person who negotiates, arranges or offers to perform a mortgage modification for one-to-four unit residential property from collecting any pre-performance compensation, requiring collateral to secure payment or taking a power of attorney from the borrower.
AB 1745	AMENDED 06/11/12	This bill would prohibit a mortgagee, beneficiary or authorized agent from recording a notice of trustee’s sale after providing written approval for a shortsale, unless the short sale approval has been revoked, in writing due to the borrower’s failure to comply with a condition of the written short sale agreement.
SB 376	AMENDED 05/21/12	This bill would limit the definition of mortgage loan originator to one who takes mortgage loan applications, negotiates or offers mortgage loans for compensation six or more times a year.
Real Estate Practice
SB 1220	AMENDED 05/25/12	This bill would impose a $75 fee for the recording of every real estate instrument, paper or notice required or permitted by law to be recorded.
Taxes
AB 1552	AMENDED 03/22/12	This bill would allow deductions on all portions of property tax bills, including but not limited to real property taxes, personal property taxes, special taxes, special assessments, fees and other charges. Editor’s note — Since Mello-Roos bonds are not taxes (they are loans), such amounts should not be deductible except to the extent of the interest paid by the homeowner under the bond payments.

Related topics:
energy efficiency, foreclosure, landlord, licensing, mortgage,

Posted by Carrie B. Reyes | Sep 24, 2012 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: Two developers formed a partnership and purchased a property to redevelop. The partnership later entered into a partnership sales agreement (PSA) and refinanced the property, using the funds to buy out the partnership interest of one of the developers. The refinance loan was secured by a trust deed on the partnership’s property. The partnership did not pay the developer the full amount due under the PSA. The partnership later defaulted and the lender foreclosed on its interest. The developer later acquired the remaining money due to it under the PSA through arbitration. The lender sought to regain the money paid to the developer through arbitration.

Claim: The lender claimed its security interest attached to the award since the partnership’s refinance was secured by a trust deed on the property.

Counterclaim: The developer claimed the lender did not have a security interest in the arbitration award, since the money was never intended by the partnership to be used as security for the loan; rather, it was to pay off the developer under the PSA.

Holding: A California appeals court held the lender was not entitled to the developer’s funds since it did not have a security interest in the arbitration award, as the money was due to the developer under the PSA. [Oxford Street Properties v. Rehabilitation Associates, LLC, et al (2012) 296 CA 4^th 141]

Related topics:
arbitration

Posted by ft Editorial Staff | Aug 27, 2012 | New Laws, Real Estate, Your Practice | 0

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

The Department of Real Estate (DRE) now requires licensees to self-report disciplinary actions or convictions from any state or licensing authority. Read the details below.

Business and Professional Code §§ 27, 10004,10166.12, 10175.2, 10236.2, 10450.6, 10470, 10470.1, 10471, 10471.1, 10471.3, 10471.5, 10472, 10473, 10473.1, 10474, 10474.5, 10475, 10476, 10477, 10479, 10481, 11318, 11360, 10050.1, 10083.2, 10100.4, 10106, 10186, 10186.1, 10186.2, 10186.9, 11310.1, 11313.2, 11317.2, 11319.2
Amended by S.B. 706
Effective date: January 1, 2012

Self-reporting required

This law requires real estate licensees to report in writing to the Department of Real Estate (DRE) within 30 days if they:

• are charged or indicted with a felony;
• are convicted, plead a verdict of guilty or no contest to a felony or misdemeanor; or
• have been the subject of a disciplinary action by any other licensing entity or authority of any  state or federal agency.

If the licensee fails to provide a written report within 30 days of receiving the charge, conviction or disciplinary action, the DRE can take disciplinary action against the licensee.

Settlement

Instead of issuing an accusation, the DRE can enter into a settlement with a licensee or applicant, identifying the factual basis for the settlement and the violated statutes. The licensee or applicant may file a petition to modify the terms of the settlement. A settlement is considered a reportable disciplinary action.

Cost awards

If a licensee, including a corporation or partnership, is found to have committed a violation, he may be required by the DRE to pay for the reasonable costs of his investigation and enforcement. To arrive at the reasonable costs of investigation, a certified copy of the actual costs or a good faith estimate of costs must be signed by the commissioner or commissioner’s representative. The commissioner is able to reduce or eliminate the cost award. If the cost award is not paid, it may be enforced in court. The licensee will not be reinstated or renewed until the award is paid, unless he demonstrates financial hardship or enters into a formal agreement with the department to reimburse the costs within one year.

If the license has been reinstated as a restricted license, the commissioner may require the restricted licensee to pay the costs associated with monitoring his licensed activities. The licensee may also be required to pay restitution to any person damaged by the actions leading to discipline. If the licensee does not pay these costs, the commissioner shall not reinstate an unrestricted license.

All cost awards will be deposited into the Real Estate Fund.

Felony conviction and imprisonment

If a licensee is imprisoned after being convicted of a felony, regardless of whether the conviction is being appealed, the licensee’s DRE license will be suspended automatically. The DRE will notify the licensee they may have their suspension reviewed at a hearing. If the hearing determines the felony was related to the qualifications, functions or duties of a licensee the commissioner shall suspend the license.

The hearing may also determine any other penalty. If no appeal is made or the judgment has become final by the time for appeal has elapsed, the license shall remain suspended.

A hearing will not be granted for violations of any statute regarding dangerous drugs or controlled substances, or a conviction of murder or sexual crime.

Public information

This law makes the protection of the public the DRE’s highest priority. An agent’s address of record and license status, including license suspensions, revocations and accusations is to be made available to the public on the internet.

DRE review

The DRE will be subject to review by the Legislature beginning January 1, 2015.

The renaming of the Recovery Account

This law changes the name of the recovery account to the Consumer Recovery Account.

Editor’s note – Just what constitutes a “disciplinary action” by another licensing, state or federal authority is not addressed here. When in doubt, report any disciplinary action by another authority to the DRE to avoid further disciplinary action.

The DRE received criticism in the aftermath of the housing crisis, which is why this new law includes the legislature’s ability to review the DRE beginning in 2015.

Related topics:

Posted by Sarah Cantino | May 30, 2012 | New Laws, Property Management, Real Estate | 0

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

This notice expands identification and registration instructions for recipients of federal funding.

The Federal Funding Accountability and Transparency Act of 2006

Amended by HUD Notice H 2012-6

Effective date: June 24, 2012

In compliance with the Federal Funding Accountability and Transparency Act of 2006, agencies and project owners receiving federal funding for low-income housing projects must report to the public:

• the dollar amount of federal money received;
• the use of money; and
• the location of the agency.

Individual households receiving aid from low-income housing programs are exempt from this requirement.

Recipients who must report receipt of federal funding include owners of:

• Project-Based Section 8 Rental Assistance Contracts;
• Section 202 Projects with Rental Assistance Contracts;
• Section 221 Projects;
• Section 236 Projects;
• Section 811 Project Rental Assistance Contracts;
• Rental Assistance Payments; or
• Rent Supplement Contracts.

To report the amount of federal funding received for these programs, project owners must first obtain a Dun and Bradstreet Number System (DUNS) number, then register in the Central Contractor Registration (CCR).

Project owners may obtain a DUNS number by:

• applying online at http://fedgov.dnb.com/webform; or
• applying via telephone at 866.705.5711.

Applicants are required to present the following information as part of the application process:

• legal company name;
• headquarters’ company name and address;
• trade-style or doing-business-as (DBA) company name;
• physical address of company;
• mailing address of company;
• company telephone number;
• contact name and title; and
• number of employees at the company’s physical location.

Project owners must obtain a DUNS number before registering in the CCR. To register in the CCR, project owners must follow the instructions given in the CCR User’s Guide. For addition information or help, registrants may visit www.ccr.gov.

Project owners who do not comply with these requirements within 60 days of April 25, 2012 may be refused future federal financing.

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

Posted by Ed Gauronski | Oct 11, 2012 | New Laws, Real Estate | 0

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

Property maintenance provisions against blight have been extended indefinitely.

Maintenance of property acquired by foreclosure

Civil Code §2929.3
Amended by A.B. 2314
Effective: January 1, 2013

A property owner must maintain vacant residential property purchased at a foreclosure sale or acquired through foreclosure. If a property owner receives a notice of a maintenance violation, he must commence corrective maintenance within 14 days of the notice. All maintenance must be completed within 30 days of the notice. Failure to commence or complete maintenance within these timelines subjects the property owner to a fine of up to $1,000 a day. This law was originally set to sunset on January 1, 2013, but is now effective indefinitely.

 

Property owners have 60 days after purchasing foreclosed property to abate health and safety violations.

Extension on abatement period for health and safety violations

Health and Safety Code §17980
Amended by A.B. 2314
Effective: January 1, 2013

A property owner who purchases a property at a foreclosure sale or acquires a property through foreclosure has 60 days to correct any health and safety violations on the property. This law applies to all properties foreclosed after December 31, 2007.

The 60-day time period may be shortened by an enforcement agency if the violation poses an immediate threat to the health and safety of the public.

 

Property owners are liable for receivership costs for fixing health and safety violations.

The property owner pays receivership costs

Health and Safety Code §17980.7
Amended by A.B. 2314
Effective: January 1, 2013

A property owner may be compelled by a court to pay all unrecovered costs associated with the receivership implemented to remedy the property’s health and safety violations.

Related topics:
nuisance, real estate owned (reo) property

Posted by ft Editorial Staff | Mar 1, 2012 | Laws and Regulations, New Laws, Real Estate, Tax | 1

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

See all new real estate laws passed in the 2011-2012 state and federal legislative sessions.

Topics:

1. Deduction requirements for energy efficient commercial buildings modified
2. Equal access to HUD programs for lesbian, gay, bisexual and transgender (LGBT) individuals
3. Commissioner authorized to obtain evidence by court order in response to complaint regarding licensee
4. Commissioner no longer to provide notice of noncompliance with education requirements
5. Violation of licensee duties will result in suspended or revoked license
6. Commissioner may deny renewal of license in response to disciplinary action

---

Reported by Carrie B. Reyes

This notice modifies former guidelines for tax deductions on recently built energy-efficient commercial buildings.

Deduction requirements for energy efficient commercial buildings modified

Internal Revenue Code §179D

Amended by Notice 2012-22

Effective date: March 12, 2012 – December 31, 2013

Energy-efficient improvements placed in service on commercial buildings between February 24, 2012 and December 31, 2013 qualify for tax deductions if the improvements show a 50% total energy reduction compared to minimum set requirements.

If an energy-efficient building does not meet the 50% energy reduction standard, a partial deduction may be taken if energy savings total at least:

• 25% for interior lighting systems;
• 15% for heating, cooling, ventilation and hot water systems; and
• 10% for the building envelope; OR
• 20% for interior lighting systems;
• 20% for heating, cooling, ventilation and hot water systems; and
• 10% for the building envelope.

This partial deduction cannot exceed $0.60 x square footage for each energy efficient system. Further, the total partial deductions cannot exceed the difference between $1.80 x square footage of the building and the amount of energy efficiency deductions allowed for all prior taxable years.

Editor’s note – This change allows energy-efficient buildings to qualify more easily for partial deductions, as the new notice increases the minimum for interior lighting systems and decreases the minimum for HVAC and ventilation systems, which are more difficult to make energy-efficient than lighting systems.

 

---

Reported by Carrie B. Reyes

This rule clarifies the Department of Housing and Urban Development (HUD)’s programs are available to all eligible individuals regardless of their sexual orientation, gender identity or marital status.

Equal access to HUD programs for lesbian, gay, bisexual and transgender (LGBT) individuals

Amended by Office of the Secretary of the HUD

24 Code of Federal Regulations §§5, 200, 203, 236, 400, 570, 574, 882, 891, 982

Effective date: March 5, 2012

The following updated definitions apply to all Department of Housing and Urban Development (HUD) and Federal Housing Administration (FHA) programs and lenders, and to the regulations for Housing Opportunities for Persons with AIDS (HOPWA), Supportive Housing for the Elderly and Supportive Housing for Persons with Disabilities programs:

• sexual orientation is defined as homosexuality, heterosexuality and bisexuality;
• gender identity is defined as actual or perceived gender-related characteristics;and
• family now includes households regardless of actual or perceived sexual orientation, gender identity or marital status.

Eligibility for HUD housing programs is determined without regard to actual or perceived sexual orientation, gender identity or marital status.

Inquiries regarding sexual orientation or gender identity to determine eligibility for HUD housing programs are prohibited, except when the information is needed to determine the minimum number of bedrooms HUD’s housing programs provide each household in temporary emergency shelters.

HUD plans to implement education and outreach on this rule to recipients of HUD funding.

For steps on how to pursue a discrimination claim under this rule, see HUD’s guidelines.

Editor’s note – first tuesday supports these changes as positive steps forward in providing fair housing for all. [For more information on first tuesday’s take on these new regulations, see the February 2012 first tuesday article, HUD acts to house lesbian, gay, bisexual and transgender (LGBT) people.]

---

Reported by Mary Balash

The Real Estate Commissioner may now obtain evidence through a court order in response to receiving a complaint regarding the actions of a real estate licensee.

Commissioner authorized to obtain evidence by court order in response to complaint regarding licensee

Business and Professions Code 10079
Amended by S.B. No. 53
Effective: January 1, 2012

In addition to investigating the actions of a real estate licensee for specific acts upon receiving a verified complaint in writing from any person, if a licensee refuses to obey a Department of Real Estate (DRE) subpoena, the Real Estate Commissioner (Commissioner) may apply to the superior court for an order requiring the licensee to appear before the Commissioner or a representative of the Commissioner to show documentary evidence or give testimony regarding the matter under investigation.

 

---

Reported by Mary Balash

This following amendment repeals existing law regarding the Real Estate Commissioner’s notice to real estate licensees that have not completed their continuing education requirements.

Commissioner no longer to provide notice of noncompliance with education requirements

Business and Professions Code 10156.2
Amended by S.B. No. 53
Effective: July 1, 2012

Existing law permits the Real Estate Commissioner (Commissioner) to advise real estate licensees who have not complied with continuing education requirements of their rights to operate before the expiration of their license.

The Commissioner may advise licensees of an extended period for compliance or advise the applicant that their right to operate under the prior license will expire either on the regular expiration date or five days from the date a notice that supplies this referenced advice is mailed, whichever is later. The commissioner must include their reasoning and the right of the applicant to request a hearing.

The amendment will render this law inoperative on July 1, 2012 and repeal this law as of January 1, 2013.

 

---

Reported by Mary Balash

This revision prevents any person with a real estate license from violating laws which govern the scope of that person’s duty as a licensee.

Violation of licensee duties will result in suspended or revoked license

Business and Professions Code 10176
Amended by S.B. No. 53
Effective: January 1, 2012

Any person acting in violation of their duties required by licensing laws may have their license temporarily suspended or permanently revoked by the Real Estate Commissioner (Commissioner) upon receipt of verified complaint in writing for any of the following crimes:

• making a substantial misrepresentation;
• making false promises of a character likely to influence another’s behavior;
• making false promises or continued misrepresentations through real estate salespersons;
• acting on behalf of more than one party in a transaction without consent of all parties;
• commingling with his or her own money or property or any money or property held for others;
• receiving compensation for the authorization of a licensee to perform any acts described in Section 10131 detailing the duties of a real estate broker where the agreement does not contain a definite date of termination;
• accepting any undisclosed amount of compensation;
• using provisions allowing the licensee an option to purchase in an agreement in which the licensee receives compensation;
• committing any fraudulent conduct;
• obtaining a signature of a prospective purchaser without first having written authorization that the prospective property is for sale, lease or rent;
• failing to disburse funds to the lender or to any other authorized commitment during the mortgage loan transaction; or
• intentionally delaying the closing of a mortgage to increase costs to the borrower.

Any of these actions are a violation of the person’s license if it occurs during the scope of the person’s duties as a licensee.

 

---

Reported by Mary Balash

This amendment allows the Real Estate Commissioner to delay or deny the renewal of a real estate license as a disciplinary action.

Commissioner may deny renewal of license in response to disciplinary action

Business and Professions Code 10177
Amended by S.B. No. 53
Effective: July 1, 2012

If the Real Estate Commissioner (Commissioner) denies or delays the renewal of a real estate license in response to any pending disciplinary actions against a licensee, the expiration of the real estate license is on hold until the pending action is final, or until the licensee voluntarily surrenders the license, whichever is earlier.

 

Related topics:
license, licensing,

Posted by Sarah Cantino | Sep 25, 2012 | Laws and Regulations, New Laws, Real Estate | 0

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

This amendment revises previous regulation of recording real estate contracts.

Government Code §27388

Amended by S.B. No. 1342

Effective date: January 1, 2013

The maximum fee that may be charged by a county recorder’s office to record a real estate instrument is raised from $3.00 to $10.00.

The following items are recordable real estate instruments subject to this maximum fee (italics indicate new additions to the list):

• deed of trust;
• assignment of deed of trust;
• amended deed of trust;
• abstract of judgment;
• affidavit;
• assignment of rents;
• assignment of a lease;
• construction trust deed;
• covenants, conditions and restrictions (CC&Rs);
• declaration of homestead;
• easement;
• lease;
• lien;
• lot line adjustment;
• mechanics lien;
• modification for deed of trust;
• notice of completion;
• quitclaim deed;
• subordination agreement;
• release;
• reconveyance;
• request for notice;
• notice of default;
• substitution of trustee;
• notice of trustee sale;
• trustee’s deed upon sale;
• notice of rescission of declaration of default; and
• any Uniform Commercial Code amendment, assignment, continuation, statement, or termination.

Related topics:

Posted by Sarah Cantino | Nov 28, 2012 | Laws and Regulations, New Laws, Property Management, Real Estate | 0

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

Protection for victimized tenants broadened.

Civil Code §1946.7; Code of Civil Procedure §1161.3

Amended by S.B. No. 1403

Effective date: January 1, 2013

Under existing law, victims of domestic abuse, sexual abuse or stalking may terminate a residential lease by delivering to their landlord a written 30-day notice to vacate. Landlords may not terminate or fail to renew a tenancy based on the tenant’s status as a victim of domestic abuse, sexual abuse or stalking. [See first tuesday Form 572]

Abused elders, abused dependent adults and their household family members are now on the list of victims protected under this law.

The tenant’s 30-day notice to vacate must be accompanied by written documentation supporting the abuse. A protective order now fulfills that documentation requirement.

Related articles:

Tenant May Terminate a Lease due to Sexual Assault, Stalking, or Domestic Violence

Landlord’s responsibility to tenants who are victims of domestic violence, sexual assault or stalking

Tenant subjected to domestic violence, sexual assault or stalking has 180 days to serve notice to vacate

The Judicial Council must create or amend a form for tenants protected under this rule to use as a defense to an unlawful detainer action. The deadline for the creation of this form is now January 1, 2014.

Related topics:
landlord, tenant

Posted by Ed Gauronski | Aug 27, 2012 | New Laws, Real Estate | 0

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

All sales of residential property on or after July 1, 2013 are to disclose gas or hazardous liquid transmission in pipelines.

Civil Code §2079.10.5
Added by A.B. 1511
Effective: July 1, 2013

Residential real estate purchase agreements entered into on or after July 1, 2013 must include the following paragraph:

NOTICE REGARDING GAS AND HAZARDOUS LIQUID TRANSMISSION PIPELINES

This notice is being provided simply to notify you that information about the general location of gas and hazardous liquid transmission pipelines is available to the public via the National Pipeline Mapping System (NPMS) Internet Web site maintained by the United States Department of Transportation at http://www.npms.phmsa.dot.gov/. To seek further information about possible transmission pipelines near the property, you may contact your local gas utility or other pipeline operators in the area. Contact information for pipeline operators is searchable by ZIP Code and county on the NPMS Internet Web site.

Provided the disclosure is delivered as required, sellers and their agents are not required to provide any additional information regarding gas and hazardous liquid transmission pipelines.

Related topics:
disclosures, fiduciary duty, purchase agreement

Posted by Carrie B. Reyes | Jun 13, 2012 | New Laws, Real Estate | 0

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

These revised energy efficiency standards for newly constructed buildings are a result of California’s evolving building energy standards, required to be revised every three years.

24 California Code of Regulations Part 6

Amended by 12-BSTD-01

Effective January 1,2014

New construction for residential buildings must include:

• solar-ready roofs (angled and facing south);
• efficient windows to allow increased sunlight and decreased heat;
• insulated hot water pipes;
• whole house fans to cool the house with evening air in lieu of air conditioning at night; and
• air conditioner installation verification by an independent inspector.

Nonresidential building standards (excepting hospitals, nursing homes, correctional centers and prisons) have been revised to require:

• high performance windows, sensors and controls;
• efficient process equipment for supermarkets, computer data centers, commercial kitchens, laboratories and parking garages;
• advanced lighting controls to adjust for daylight and occupancy;
• solar ready roofs; and
• cool roof technology.

The particular requirements vary by the state’s 16 climate zones, which can be found at energy.ca.gov.

These revisions will increase the construction cost of a new home on average by $2,290 and return $6,200 over 30 years of energy savings.

Editor’s note – California is leading the way in energy efficiency efforts, its solar capacity alone making up half the nation’s solar capacity. To compete with new energy efficient homes, read up on how to install and market energy efficient improvements in your clients’ homes.

Related articles:

Energy efficient housing: strategies for agents

Make solar power feed-in tariffs work for you

Related topics:
energy efficiency, solar energy

Posted by Carrie B. Reyes | Sep 17, 2012 | Finance, Laws and Regulations, Real Estate | 0

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

The ability of local governments to impose fines on owners of foreclosed property in a state of blight has been indefinitely extended under the Homeowner Bill of Rights.

The fine may be as high as $1,000 a day. The local government may also impose additional penalties, which can include an appointment of a receiver (with the duties of a property manager), the cost of which the owner will be required to pay as a priority lien coupled to property taxes.

The aim of this law under the Homeowner Bill of Rights (a portion of which passed in July) is to lessen the negative effect foreclosures have on neighborhoods and surrounding communities. Fines will add up quickly for owners of REOs (read: lenders) who do not maintain their properties.

Hopefully, this will be sufficient encouragement for owners of blighted properties to take notice and maintain them.

With more than 10,000 REOs on their books in California alone, Fannie Mae (and thus the taxpayer) stands to lose the most if a solution is not found.

Related article:

Homeowner Bill of Rights is law

first tuesday insight

This new law has got it right. The only language lenders (the vast majority who own these abandoned REOs) speak is dollar signs – once the fines start rolling in, they will soon begin maintaining their foreclosed homes.

Levying fines on absentee property owners will be a boon for the recovery for a couple of reasons.  Neighborhoods blighted by unkempt foreclosed property suffer from decreased property values even below the new norm of the recovering real estate market.

Blight is a cancer, literally eating away at neighborhoods as unattended structures fall into disrepair. The result is a vicious cycle of increased crime rates, decreased desirability and thus depreciation in the truest economic sense. Ridding communities of this cancer takes work.

Once the maintenance work follows code enforcement, a virtuous cycle takes hold, increasing property values and pulling many negative equity homeowners out of the financial black hole their home has become. It is at this point that homeowners will sense it is time to sell, allowing them to buy a replacement home – the mainstay action of a long-term MLS single family residence (SFR) regime.

Soon, tenants will join in the demand, building starts will rise and, well, we are then off to the races again.

Related article:

Foreclosed home maintenance: who is responsible?

The best way for lenders to ensure properly maintained REOs, while simultaneously contributing to their coffers, is to rent these vacant homes.

Fannie Mae and Freddie Mac (Frannie) are currently in the process of selling 2,500 homes to investors who will soon rent these formerly empty shells to tenants, boosting property values in ghost town neighborhoods (if they can find creditworthy tenants and keep them rented for the five year program they must commit to). Presently, Frannie is limiting the pilot program in California to 500 homes in the Los Angeles and Riverside/San Bernardino area.

But what are the side effects? This new law is likely to have a significant impact on the buy/rent divide in California’s real estate market.

While many believe that now is a great time to buy real estate, few are qualified and even fewer have the confidence to invest in owning an SFR. Thus, those who are already inclined to rent, for economic and demographic reasons, will be further enticed to rent if the glut of fallow REOs suddenly becomes available to occupy at reasonable rates.

User demand in the California real estate market is currently focused on rental properties, which has driven rents a bit higher, especially in thriving regions of job creation such as the Silicon Valley, and urban San Diego to a lesser extent. An increase in rental housing supply means more demand for jobs (read: agents) in the real estate market.

Those jobs? Property managers.

Related articles:

Syndicators, schemes and scams: the business of REO rentals

REO rentals: a syndicator’s guide

Re: California enacts law to levy heavy fines for blight from HousingWire

Related topics:
real estate owned property (reo)

Posted by Sarah Cantino | Nov 28, 2012 | Laws and Regulations, New Laws, Property Management, Real Estate | 0

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

Attention, landlords: revised rules for successors to residential lease agreements.

Civil Code §1962

Amended by A.B. No. 1953

Effective date: January 1, 2013

Within 15 days of acquiring ownership to residential property, a successor landlord must provide all tenants with:

• the name of the new property owner;
• the address of the new property owner; and
• other information necessary for rent payment.

A successor landlord may not give the tenant a notice to quit the property, or file an unlawful detainer action based on rent unpaid and due during the period in which the landlord failed to provide rent payment information.

This new law does not excuse the tenant of their obligation to pay rent.

Related topics:
landlord, tenant

Posted by Sarah Cantino | Jun 19, 2012 | Investment, Laws and Regulations, Real Estate, Recent Case Decisions | 1

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

Facts: A real estate investment trust (REIT) and an investor formed a partnership. The purpose of the partnership was to own and operate an existing nonresidential building by leasing it to a tenant who was an entity owned by the investor. The partnership and tenant signed a lease agreement in which the partnership agreed to make tenant improvements (TIs) and the tenant agreed to reimburse the partnership for their cost upon completion. The partnership commenced construction of the TIs.  Before completion of the TIs, both partners became aware the tenant had financial problems. When payment came due on completion of the TIs, the tenant filed for bankruptcy and the partnership recovered no part of the costs for the TIs.

Claim: The REIT made a demand on the investor for the losses incurred due to the tenant’s failure to pay for the TIs, claiming the investor, as owner of the tenant, violated his fiduciary duty owed to the REIT as a partner since he failed to disclose the tenant’s negative financial information.

Counter claim: The investor claimed he did not fail to disclose the tenant’s negative information since, even though he was the owner of the tenant, his knowledge of the tenant’s financial problems did not predate the formation of the partnership or the commencement of the TIs.

Holding: A California appeals court held the investor was not liable for his partner’s losses based on any failure of the investor to disclose the tenant’s negative financial information since the investor was unaware of the tenant’s financial problems prior to the formation of the partnership and commencement of construction of the TIs. [Mission West Properties, L.P. et al. v. Republic Properties Corporation, et al. (2011) 197 CA4th 707]

Editor’s note — While no amount of preemptive research may have been able to save the managing partner from suffering a loss in this case, his failure to thoroughly vet the tenant cannot be blamed on the passive partner who was the owner of the tenant. Every savvy landlord will thoroughly investigate a prospective tenant’s financial standing and other entanglements to avoid being sacked with a bankrupt tenant and the undesired cost of property improvements.

Related forms: Operating Agreement – LLC [See first tuesday Form 372], Tenant Lease Worksheet [See first tuesday Form 555] and Notice of Charges Due – Other than Monthly Rent Payment [See first tuesday Form 568].

Related topics:
commercial property, fiduciary duty, real estate investment trust (reit)

Posted by Sarah Cantino | Jul 17, 2012 | Laws and Regulations, Real Estate, Recent Case Decisions | 0

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

Facts: A property owner made improvements to his neighbor’s property and used the property regularly without permission for 13 continuous years. Eight years into this period, the property owner purchased the property from his neighbor then immediately sold the property to a buyer, with the exception of the improved portion. The exception was specified in the purchase agreement, but not in the grant deed. The buyer sold the property to a second buyer. The first and second buyers were each advised of the property owner’s claim to the portion of the property he improved, and of the absence of the property owner’s claim from all grant deeds. The second buyer later sold the property to a third buyer without noting the exception.

Claim: The third buyer sought quiet title to the property, claiming the property owner could not use the improved land since he did not assert his ownership right by timely filing a lawsuit against the first buyer when the grant deed omitting the owner’s interest was recorded.

Counter claim: The property owner sought to establish his right to the improved property, claiming he was entitled to a prescriptive easement since he made improvements on the property and continually used it without permission for 13 years

Holding: A California appeals court held the property owner was entitled to the prescriptive easement since he asserted his right to use the property by improving it and continually using it without permission for 13 continuous years. [Peter Connolly et al. v. Wade Trabue et al. (2012) 204 CA4th 1154]

Editor’s note — While delaying to file a lawsuit against the first buyer prevented the property owner from holding title to the disputed portion of the property, it in no way negated his right to a prescriptive easement. The property owner’s unpermitted improvement and use of the property for over five years fulfilled the statutory requirements for obtaining a prescriptive easement, the owner’s continued use of the property.

 

Related topics:
easements

Posted by Carrie B. Reyes | Dec 26, 2012 | New Laws, Real Estate | 0

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

If you have clients receiving loan modifications, this one’s for you: loan modification negotiators cannot require any fee before all services have been completed.

Business and Professional Code §10085.6, Civil Code §2944.7

Amended by S.B. No. 980

Effective: immediately

Existing law prohibits any attorney or Department of Real Estate licensee from receiving up-front fees or compensation for negotiating a modification of a trust deed secured by a one-to-four unit residence.

This prohibition has been extended through January 1, 2017.

Related article:

Attorneys and DRE licensees prohibited from collecting advance fees

Related topics:
loan modification

Posted by ft Editorial Staff | Jun 6, 2012 | Finance, Laws and Regulations, Letters to the Editor, Real Estate | 1

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

Question: If a nonresident of California owns California income property, does his broker need to withhold 7% of the income generated by the property for tax purposes?

Answer:

California Revenue and Taxation Code §18662 states that nonresidents of California must pay taxes on California income. In the case of a landlord, these taxes are to be withheld by either the landlord or his agent from the rent paid on the California property.

Further, the California Franchise Tax Board’s guidelines on the matter state:

Withholding agents are required to withhold from all payments or distributions of California source income made to a nonresident when the payments or distributions are greater than $1,500 for the calendar year unless the withholding agent receives authorization for a waiver or a reduced withholding rate from the Franchise Tax Board.

The instructions for completing Form 592-B, “Nonresident Withholding Tax Statement,” which must be filed with the Franchise Tax Board, state 7% is the standard amount of tax to be withheld from rents paid/received in California.

 

Question: If a financially distressed homeowner collects rent on rental property but does not make his mortgage payments, what are the consequences?

Answer:

If, within the first year of owning a property,a property owner collects rent without making mortgage payments he is committing an act of rent skimming. If the owner commits rent skimming the lender may collect all rental income and court costs. [Calif. Civil Code §891(c)]

If the owner’s rent skimming causes the property to be foreclosed, the tenant may collect his security deposit and moving expenses. If the owner was already two or more months delinquent when the tenant signed the lease, the tenant may collect at least three times the rent paid. [Calif. Civil Code §891(d)]

If, within two years of acquiring five or more properties, the property owner collects rent without making mortgage payments on at least five of those properties, he is committing multiple acts of rent skimming. Multiple acts of rent skimming is a crime in California. [CC §890(b)]

A homeowner who commits multiple acts of rent skimming may be imprisoned for up to one year, fined up to $10,000, and pay at least three times the rent collected to the lender and tenants.[CC §892]

If the homeowner does not make mortgage payments but uses the collected rental payments for medical expenses or to make necessary repairs to the rental property and the homeowner has no other funds for these expenses, the homeowner has not committed rent skimming. [CC §893]

Why the one- and two-year limits? The legislative intent of rent skimming statutes is to prevent intentional dishonest behavior, not to punish property owners who, years after purchase, come under financial duress.

Related article:

Rent skimming by buyers within the first year

Related topics:
rent

Posted by Sarah Cantino | Dec 26, 2012 | New Laws, Property Management, Real Estate | 0

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

The notice of right to reclaim abandoned property must now include information about storage costs and time frames for reclaiming property.

California Civil Code §§1983, 1984, 1985, 1987, 1988 and 1990.

Amended by A.B. No. 2521

Effective date: January 1, 2013

If a residential tenant vacates a rented property and leaves behind personal property, the landlord must deliver to the tenant a notice of the right to reclaim personal property. The notice may be delivered to the tenant, or to another party who the landlord believes owns the personal property.

Before reclaiming the property, the tenant (or other owner of the personal property) must reimburse the landlord for the cost of storing the property. The tenant or owner of the personal property is not required to pay any storage costs if:

• their personal property remained on the rented premises; and
• they reclaim their personal property within two days of vacating the premises.

A notice of the right to reclaim personal property sent to the tenant must now include:

“When you vacated the premises at ___________________________________, (Address of premises, including room or apartment number, if any) the following personal property remained: ___________________________________ (Insert description of the personal property).

You may claim this property at ___________________________________ (Address where property may be claimed).

If you claim this property by ________ (insert date not less than 2 days after the former tenant vacated the premises), you may minimize the costs of storage.

If you fail to claim this property by ________ (insert date not less than 2 days after the former tenant vacated the premises), unless you pay the landlord’s reasonable costs of storage for all the above described property, and take possession of the property which you claim, not later than ________ (insert date not less than 15 days after notice is personally delivered or, if mailed, not less than 18 days after notice is deposited in the mail) this property may be disposed of pursuant to Civil Code Section 1988.”

A notice of the right to reclaim personal property sent to a person other than the tenant must now include:

“If you claim this property by ________ (insert date not less than 2 days after the former tenant vacated the premises), you may minimize the cost of storage.

If you fail to claim this property by ________ (insert date not less than 2 days after the former tenant vacated the premises), unless you pay the landlord’s reasonable cost of storage and take possession of the property to which you are entitled no later than ________ (insert date not less than 15 days after notice is personally delivered or, if mailed, not less than 18 days after notice is deposited in the mail) this property may be disposed of pursuant to Civil Code Section 1988.”

A landlord may deliver this notice by first class mail or email.

Additionally, the threshold amount for determining the disposal method of abandoned personal property has been raised from $300 to $700. If abandoned personal property is worth $700 or more, the landlord must sell the property at public auction. If the personal property is worth less than $700, the landlord may dispose of the property as they choose.

Editor’s Note — Current first tuesday students and purchasers of first tuesday Forms-on-CD 4.3 may download a FREE copy of these updated forms. Log in to your student homepage at www.firsttuesday.us using your eight-digit Department of Real Estate (DRE) license number or T-number and click, “first tuesday Forms Downloads and Updates.”

Related topics:
landlord, tenant

Posted by ft Editorial Staff | Dec 28, 2012 | New Laws, Real Estate | 0

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

Tenants renting a home must receive notice upon foreclosure sale.

Civil Code §2924.8

Amended by A.B. 2610
Effective dates: March 1, 2013 – December 31, 2019*

The notice of sale to be posted with the notice of trustee’s sale on a residential property in foreclosure has been amended to read:

(Changes are indicated in bold)

“Foreclosure process has begun on this property, which may affect your right to continue to live in this property. Twenty days or more after the date of this notice, this property may be sold at foreclosure. If you are renting this property, the new property owner may either give you a new lease or rental agreement or provide you with a 90-day eviction notice. You may have a right to stay in your home for longer than 90 days. If you have a fixed-term lease, the new owner must honor the lease unless the new owner will occupy the property as a primary residence or in other limited circumstances. Also, in some cases and in some cities with a “just cause for eviction” law, you may not have to move at all. All right and obligations under your lease or tenancy, including your obligation to pay rent, will continue after the foreclosure sale. You may wish to contact a lawyer or your local legal aid office or housing counseling agency to discuss any rights you may have.”

The amended notice must also be delivered via first-class mail to the resident of the property in foreclosure.

This notice will be translated into Spanish, Chinese, Tagalog, Vietnamese or Korean by the Department of Consumer Affairs (DCA). The use of this notice will be required the later of March 1, 2013, or 60 days after the DCA posts the required translations on its website.*

This law will sunset on December 31, 2019.

 

90-day notice to quit due to foreclosure extended to periodic tenancies

Use of the 90-day notice to quit in the event of foreclosure sale

Code of Civil Procedure § 1161b

Amended by A.B. 2610
Effective dates: January 1, 2013 – December 31, 2019

To terminate the periodic tenancy of a tenant who occupies a residential property at the time the property is sold in foreclosure, the tenant must receive at least 90 days’ written notice to quit.

Residential tenants with a fixed-term lease entered into prior to the foreclosure sale will have the right to possess the rented property until the end of their lease, unless:

• the new owner will use the property as their primary residence;
• the tenant is the current owner of the property who has defaulted on the mortgage;
• the tenant is the child, spouse or parent of the current owner;
• the lease was not the result of an arm’s length transaction; or
• the rent was substantially less than fair market rent without subsidization or reduction per court order.

A fixed-term tenancy can be terminated for any of the above reasons by serving the tenant with a 90-day notice to quit. [See first tuesday Form 573]

The new owner bears the burden of proof in establishing the tenant is not eligible to possess the property through the end of the lease term.

This law will sunset on December 31, 2019.

Editor’s note — In practice, the 90-day notice requirement was already in place via the federal Protecting Tenants At Foreclosure Act. However, the notice referenced the California 60-day notice requirement, with only an oblique reference to the longer federal notice requirement (“other laws…may provide you with a longer notice [period]”). Adopting the federal language and amending the notice will provide tenants with an accurate and clear declaration of their rights.

Related topics:
notice of trustee sale (nots)

Posted by ft Editorial Staff | Dec 28, 2012 | New Laws, Real Estate | 0

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

This amendment repeals private mortgage insurance limits until 2018.

Insurance Code §12640.09

Amended and Added by S.B. 1450
Effective date: January 1, 2013

Currently, a private mortgage insurer may only insure a mortgage lender for up to 30% of a first lien secured by a one-to-four unit residential property. A mortgage insurer may only exceed the 30% cap by obtaining a secondary policy from a different private mortgage insurer.

From January 1, 2013 to December 31, 2017, private mortgage insurers will be able to exceed the existing 30% threshold without obtaining reinsurance from another private mortgage insurer.

Editor’s note — Initially, this cap was meant to give private mortgage insurers another source of profit (the secondary reinsurance policies). However, the cost and the complication of involving a competing insurer quickly caused the program to fizzle. This law removes the cap to encourage increased lending.

Related topics:
private mortgage insurance

Posted by ft Editorial Staff | Jan 1, 2012 | New Laws, Real Estate | 0

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

This law sets procedure for disputing the validity of a property tax sale.

CA Revenue & Taxation Code §§3725, 3731

Amended by A.B. No. 261
Effective January 1, 2012

When a tax-defaulted property is sold and the sale is believed to be invalid or irregular, proceedings challenging the sale’s validity can be commenced if:

• the individual challenging the sale’s validity first petitions the board of supervisors within one year after the tax-defaulted property was sold; and
• the proceeding commences within one year after the board of supervisors determines a tax-defaulted property sale is valid.

These changes only apply to sales made on or after January 1, 2012.

Related topics:
new laws 2011, property tax

Posted by Carrie B. Reyes | Mar 1, 2012 | Laws and Regulations, Property Management, Real Estate, Recent Case Decisions | 0

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

A roommate pairing service, not licensed as real estate brokers, required users to disclose their sex, sexual orientation and familial status and matched potential roommates based on these disclosures. A fair housing council sought to stop the service from requiring users to disclose this information, claiming it violated the Fair Housing Act (FHA), which prohibits discrimination on the bases of sex or familial status. The service claimed roommate selection was excluded from these FHA prohibitions, since controlling who may or may not share a living space raises constitutional concerns. A California appeals court held the roommate pairing service’s practice of soliciting and disclosing information on an individual’s sex, sexual orientation and familial status is not prohibited by FHA, since individuals may select roommates for shared living units based on these factors. [Fair Housing Council of San Fernando Valley v. Roommate.com, LLC (February 2, 2012) _ CA4th _]

Editor’s note: The FHA applies only to “dwellings,” meaning a living unit designed for occupancy by a family. Thus, the FHA does not apply to roommate situations, as they have to do with relationships within the dwelling, as subparts of the larger living space. When enacting the FHA, Congress intended to prevent landlords from discriminating in the renting and selling of property. It did not intend to regulate the arrangement between people sharing the same living space.

Related topics:

Posted by Carrie B. Reyes | Feb 28, 2012 | Laws and Regulations, Real Estate | 1

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

The Consumer Financial Protection Bureau (CFPB), established in 2010 under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), has proposed a standardized mortgage billing statement. The billing statement is crafted to help consumers stay on top of payments, anticipate mortgage rate resets and easily notice mortgage servicer errors. [For more information about the Dodd-Frank Act, see the October 2010 first tuesday article, TILA circa 2010; consumer protection enhancement.]

The proposed billing statement includes:

• a breakdown of how the payment is split between the principal, interest and escrow payments;
• the principal amount remaining to be paid;
• the maturity date of the loan;
• notice of any prepayment penalties; and
•  in the instance of an adjustable-rate mortgage (ARM), when and how the rates can reset.

The CFPB is asking for input from industry professionals and the public before implementing a final version of the billing statement this summer. The bureau is also in the process of drafting new disclosure rules required for exotic hybrid ARMs, and rules to protect borrowers from expensive, “force-place” homeowner’s insurance policies.

first tuesday take: The nationwide $25 billion bank settlement has curbed some confusing servicer practices, but it has done nothing to change the practices of non-bank servicers.

This proposed mortgage industry billing statement will hopefully go a long way toward preventing future foreclosures based on transparency of loan conditions. Until the formation of the CFPB, we have never had a consumer protection agency within the federal government. The industry has always vociferously argued the consumer is very well informed and can protect themselves from evil lenders and the like without someone (read: the government) between them and those lenders. However, in light of recent nefarious lender activity, there has been a paradigm shift in attitude concerning consumer protections.  Still, courts, it seems, can only get involved after the damage is done. [For more information on the national bank settlement, see the upcoming February 2012 first tuesday article, Is $18 billion enough for CA homeowners?]

To suggest changes for the proposed standardized statements, visit CFPB’s website.

Re: “CFPB outlines plans for mortgage servicers” from the Washington Post and “Prototype of standardized monthly mortgage statement is released” from the Los Angeles Times

Related topics:
trust deed

Posted by ft Editorial Staff | Jan 1, 2012 | Appraisal, New Laws, Real Estate | 0

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

These laws define the improper influence a real estate licensee or an appraisal management company is prohibited from exercising in a real estate transaction involving an appraisal.

Business and Professions Code §11345.4, California Civil Code §1090.5

Added by S.B. 6
Effective: January 1, 2012

DRE Regulation Article 11.1 Section 2785

Effective: October 26, 2011

Real estate licensees and appraisal management companies in a real estate transaction involving an appraiser may not exercise or attempt to exercise the improper influence of the development, reporting, result or review of an appraisal sought for a mortgage loan controlled by the Real Estate Settlement and Procedures Acts (RESPA). [See RPI Form 200]

Improper influence includes any of the following activities:

• withholding or threatening to withhold timely or partial payment for a completed appraisal report, regardless of whether a sale or financing transaction closes;
• withholding or threatening to withhold future business from an appraiser;
• demoting or terminating, or threatening to demote or terminate an appraiser;
• expressly or implicitly promising future business, promotions or increased compensation for an appraiser;
• conditioning the ordering of an appraisal report or the payment of an appraisal fee, salary or bonus based on the opinion, conclusion, valuation or preliminary value estimate requested from an appraiser;
• requesting an appraiser provide an estimated, predetermined or desired valuation in an appraisal report prior to entering into a contract or completing a report;
• requesting an appraiser provide comparable sales prior to the completion of the report;
• providing an appraiser with an estimated, predetermined or desired value for a property or a proposed or target amount to be loaned to the borrower, except that the appraiser may be handed a copy of the purchase agreement; or
• requesting the removal from an appraisal report of comments disclosing adverse property conditions or physical, functional or economic obsolescence.
• hiring an appraiser based on the valuation likely to be generated by the appraiser;

Real estate licensees are further prohibited from providing an appraiser, appraisal company or appraisal management company with stock or financial or non-financial benefits.

Appraisal management companies are further prohibited from requiring compensation from an appraiser in order for the appraiser to attain priority in the assignment of business.

Editor’s note – Civil Code §1090.5, which was adopted in 2007, already barred a person with an interest in a real estate transaction from improperly influencing an appraiser of real estate. Additional amendments which finalized the Truth in Lending Act (TILA) in 2010 also defined the improper influence of the appraisal process. DRE Regulation Article 11.1 Section 2785 above was added by the DRE to highlight the relevance of federal legislation to the practice of real estate in California. It also adds to the state’s list of actions defined as the improper influence of the appraisal process.

Related articles:

December 2010 LWs

Appraisal management to the rescue?

Anyone with an interest in a real estate transaction may ask an appraiser to do any of the following:

• consider additional relevant property information, including information regarding comparable properties;
• provide further explanation for the valuation;
• correct errors in the appraisal report;
• provide a copy of the sales contract with purchase transaction.
• obtain multiple valuations in order to assure reliability in value assessment;
• withhold compensation due to breach of contract or inferior service; or

Editorial note – The last point in the list above goes against the intended effect of the law. Being privy to the purchase agreement directly influences the appraiser to value the property at a price equal to or greater than the amount stated in the agreement.

Related topics:
appraisal management company (amc), new laws 2011, real estate settlement procedures act (respa)

Posted by Sarah Cantino | Jun 19, 2012 | 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 of a residential unit governed by rent control laws decreased tenant services by lowering the temperature of a common area hot tub and shortening its heating cycle. Upon the tenant’s petition, the city Rent Control Board (RCB) ordered the landlord to decrease the rent, reducing his resulting profit to comply with rent control limits.

Claim: The landlord sought to avoid the RCB’s order, claiming he was wrongly required to decrease the tenants’ rent since no evidence was presented to prove the landlord profited from the decreased tenant services.

Counter claim: The RCB claimed the landlord must lower the rent since a landlord’s profits can reasonably be presumed to increase beyond rent control thresholds as a result of decreased operating expenses related to tenant services.

Holding: A California appeals court held the landlord was not required to decrease rents since no evidence was presented to prove the decreased services increased his profit. [Santa Monica Properties v. Santa Monica Rent Control Board (2012) 203 CA4th 739]

Editor’s note —The reduction of tenant services in this case was so minor that the landlord’s profit could not be presumed. A RCB must base its reduction of rent on the dollar amount of the increase in the landlord’s profit due to a reduction in services.

Related topics:
landlord, rent control

Posted by Sarah Cantino | Oct 31, 2012 | New Laws, Property Management, Real Estate | 0

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

Landlords: new limitations on rent and security deposit payments in store in 2013. Heads up!

Civil Code §1947.3
Amended by S.B. 1055
Effective date: January 1, 2013

A landlord cannot require a tenant to pay rent or security deposits exclusively by electronic funds transfer (EFT) or cash. If a landlord accepts EFT or cash payments, he must also allow an alternative method of payment.

An ETF is defined as any transfer of funds which is performed via:

• computer;
• telephone;
• direct deposit or withdrawal;
• automated clearinghouse; or
• other electronic means.

This does not include transfers initiated by checks or other paper documents.

Editor’s note — Many low-income households and seniors experienced difficulty accessing online payment systems. Thus, the birth of this new law. Observe, though, that landlords may still “go green” with electronic payment options. They just can’t do so to the exclusion of checks or other payment methods.

Related topics:
landlord, rent, tenant

Posted by ft Editorial Staff | Dec 28, 2012 | New Laws, Property Management, Real Estate | 0

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

Residential landlords: NODs must be disclosed to potential tenants

Civil Code § 2924.85

Added by S.B. 1191

Effective dates: January 1, 2013 – January 1, 2018

Owners of one-to-four unit residential rental property who have received a notice of default (NOD) on the property must disclose the NOD in writing to any prospective tenants before entering into a lease agreement.

If a landlord violates this law the tenant may:

• terminate the lease and recover all prepaid rent, plus the greater of one month’s rent or twice the amount of money lost; or

• if the foreclosure sale has not occurred, remain bound by the lease and deduct the amount of one month’s future rent.

The required disclosure must include the following statement:

“The foreclosure process has begun on this property, and this property may be sold at foreclosure. If you rent this property, and a foreclosure sale occurs, the sale may affect your right to continue to live in this property in the future. Your tenancy may continue after the sale. The new owner must honor the lease unless the new owner will occupy the property as a primary residence, or in other limited circumstances. Also, in some cases and in some cities with a “just cause for eviction” law, you may not have to move at all. In order for the new owner to evict you, the new owner must provide you with at least 90 days’ written eviction notice in most cases.”

The disclosure notice must be provided in English, and include Spanish, Chinese, Tagalog, Vietnamese and Korean translations.

It is the owner’s responsibility to ensure this notice is provided in the event of an NOD. A property manager cannot be held liable for failure to provide this notice, unless he neglects to provide the notice after being instructed by the owner to do so.

This law will sunset on January 1, 2018.

Related topics:
rent, rental, residential property

Posted by Giang Hoang-Burdette | Feb 1, 2012 | New Laws, Real Estate | 2

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

This law clarifies DRE licensee use of nicknames in the practice of real estate.

Calif. Code of Regulations §2731
Effective: September 10, 2011

An individual who is a Department of Real Estate (DRE) licensee may use a nickname in place of his legal first name in his real estate practice, provided the nickname is accompanied by his last name and his DRE license number.

Related topics:
license, new laws 2011

Posted by Carrie B. Reyes | Jul 24, 2012 | New Laws, Real Estate | 0

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

This guidance addresses concerns about mortgage servicer practices involving military service members who receive Permanent Change of Station (PCS) orders.

Joint guidance issued by: the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency

Effective date: June 21, 2012

Servicers of loans borrowed by military members receiving Permanent Change of Station (PCS) orders must:

• provide accurate and clear information on assistance available to them, including assistance programs under:

• the Making Home Affordable Program;
• Fannie Mae;
• Freddie Mac;
• the Federal Housing Administration (FHA);
• the Department of Veterans Affairs (VA); and
• the Department of Agriculture-Rural Development (USDA-RD);
• provide a reasonable way for homeowners with PCS orders to check on the status of their request for assistance; and
• timely provide their decision regarding assistance requests to homeowners with PCS orders, and include an explanation if they deny assistance.

Servicers may not:

• ask homeowners with PCS orders to waive their foreclosure moratorium rights under the Servicemembers Civil Relief Act (SCRA) or any other law as a condition of providing or evaluating the homeowner for assistance; or
• advise homeowners with PCS orders who are current on their loans to intentionally skip their payments to create the illusion of financial distress in order to qualify for assistance programs.

A servicer who fails to adhere to these guidelines or commits any other unfair, deceptive or abusive acts will be subject to discipline by one or more of the responsible agencies, and required to strengthen its programs and processes to comply with these guidelines.

Related topics:
department of veterans affairs (va), fannie mae, federal housing administration (fha), freddie mac, loan servicer

Posted by Carrie B. Reyes | Jul 13, 2012 | Finance, Laws and Regulations, Real Estate | 8

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

Offering cramdowns to underwater homeowners is the solution for the struggling housing industry, according to the firm, long-standing conviction of economist, Robert J. Shiller.

Shiller claims writing down a home’s loan balance to reflect its fair market value (FMV) would decrease default potential, revive homeowner optimism, increase home values and revitalize neighborhoods.

Shiller presents two routes for the U.S. to arrive in cramdown land.

The first road: the government creates an Office of Mortgage Modification, and gives it the authority to impose cramdowns if it is more cost effective for a lender’s balance sheet than the alternative foreclosure or loan modification. This plan was proposed by three economists as the Mortgage and Securities Stabilization, Recovery and Modification Program Act of 2009, and has yet to be sponsored by anyone in Congress.

The second road: the government seizes home loans through its eminent domain authority, using investor cash to pay the lender the home’s FMV, and then reduce the home loan’s principal balance. Only homeowners current on their home loans can participate, as they are able to continue making payments to those new investors, keeping the program soluble.

California’s own San Bernardino County has volunteered to be the guinea pig for this second idea, recently having unanimously voted to explore this eminent domain cramdown project as a viable practice for their county.

first tuesday take

Shiller demands a collective movement toward cramdowns from the entire housing industry. This would be ideal. However, it’s already been five years since the housing crisis hit (and two attempts in Congress to reinstate judicial cramdown authority). Worse, many of the powers-that-be are still hung up on punishing underwater homeowners as the sinners instead of fixing the damage done by an entire industry’s profligate boom-time lending and sales standards.

In other words, it’s more likely we’ll see a sudden era of political compromise and bountiful efficiency in Congress than see the real estate players agree to get along to “solve” the housing problem. Instead, the simplest solution is to return cramdown authority to bankruptcy courts. This competition is what the lenders need to act on their own behalf. Surprising how that works.

Related article:

Reports suggest FHFA killed cramdowns without cause

Until 2005, bankruptcy courts had the authority to institute cramdowns on debt secured by singlefamily residences (SFRs) as part of bankruptcy proceedings. In the 1980s, when bankruptcy courts were given this authority, lenders responded with eager willingness to cramdown home loans for distressed homeowners to avoid the more expensive judicial hammer (which went largely unused). This has worked in the past, so why reinvent the wheel with more government programs and roundabout government encouragement?

Related article:

In praise of cramdowns

Allowing judges the power to decide what is best, and fair, for underwater homeowners will alleviate the moral hazard cramdown critics rest on, while awakening lender morality in conduct toward the public they view as serfs – the 99%.

Lenders are never going to realize cramdowns are in their best interest on their own, but they might somehow get the point with a little encouragement from bankruptcy courts.

Re: Reviving Real Estate Requires Collective Action from the New York Times

Related topics:
bankruptcy, cramdowns, eminent domain, principal reduction

Posted by Carrie B. Reyes | Dec 26, 2012 | New Laws, Real Estate | 1

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

This law standardizes permit fees for rooftop solar installation across the state.

California Government Code §66015

Amended by SB 1222

Effective dates: January 1, 2013 – January 1, 2018

This law clarifies the amount cities and counties can charge residents for a permit to install a rooftop solar energy system. The cost of the permit is not to exceed the reasonable cost of providing the permit service.

For residential rooftop solar systems, the cost of the permit cannot exceed:

• $500; plus
• $15 per kilowatt (kW) for each kW above 15kW.

For commercial rooftop solar systems, the cost of the permit cannot exceed:

• $1,000; plus
• $7 per kW for each kW between 51kW and 250kW; plus
• $5 for every kW above 250kW.

The standardized amounts can be exceeded if the city or county provides substantial evidence the reasonable cost to issue the permit exceeds the allowed amount.

Related topics:
solar energy

Posted by ft Editorial Staff | Nov 29, 2012 | New Laws, Real Estate | 0

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

Stricter recording and notification requirements for lenders foreclosing on CID units

Civil Code §§2924.1, 2924b
Added by and Amended by A.B. 2273, respectively
Effective date: January 1, 2013

A foreclosing lender must record a trustee’s deed within 30 days of acquiring  a common interest development (CID) unit at a trustee’s sale.

Homeowners’ associations (HOAs) may request a copy of the trustee’s deed from the lender. The requested trustee’s deed must now be mailed within 15 business days of the date of the trustee’s sale, instead of the date the trustee’s deed is recorded.

Related article:

HOA may request a copy of trustee’s deed on lender foreclosure of a unit

Editor’s note — Prior to the passing of these laws, lenders did not have to record trustee’s deed after foreclosing on a CID unit. As a result, HOAs had a difficult time identifying the new owner responsible for paying HOA assessments. These new laws require lenders to provide notification of ownership contingent on the date of the sale, not the recording. For good measure, it also requires the trustee’s deed to be recorded, in case the lender “forgets” to notify the HOA upon the sale.

Related topics:
homeowners association (hoa)

Posted by Sarah Cantino | Apr 26, 2012 | Finance, Loan Products, New Laws, Property Management, Real Estate | 0

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

To foreclose on a Federal Housing Administration (FHA)-insured mortgage, the lender must notify residential tenants of the upcoming foreclosure sale of the premises they occupy under the Protecting Tenants at Foreclosure Act (PTFA).

Amended by Mortgagee Letter 2012-06

Effective date: March 15, 2012

A lender foreclosing on a tenant-occupied residential property encumbered by an FHA-insured mortgage must serve a Notice of Pending Acquisition (NOPA) to the tenants within a 60 to 90 day window period prior to the foreclosure sale.

The NOPA includes information advising the tenant that the property they occupy will be sold at a foreclosure sale and ownership temporarily transferred to the lender, until title is transferred to the U.S. Department of Housing and Urban Development (HUD).

Also disclosed is the existence of the right to a 90-day notice to vacate after the foreclosure sale, granted by the Protecting Tenants in Foreclose Act (PTFA), that must be received by the tenant before they need to vacate the property.

In practice, the lender acquiring a property with an FHA-insured mortgage at a foreclosure sale immediately determines if the tenant is eligible to remain in the property upon the lender’s conveyance of the property to HUD.

Following the tenant’s receipt of the NOPA, tenants may file a request with HUD to remain in the property after transfer of title from the lender to HUD, if:

• the tenant’s occupancy is necessary to protect the property from vandalism;
• the average time for HUD to sell property in that residential area exceeds six months;
• when the property is two-to-four units, whether its marketability is improved by continued occupancy;
• eviction expenses make it an impractical option; or
• a tenant’s long-term illness or injury will be worsened by removal from the property.

If the tenant’s situation resembles one of the scenarios described above, the tenant or the property must meet each of the following criteria:

• the house is habitable, as defined by HUD guidelines;
• the tenant has lived in the house a minimum of 90 days prior to the foreclosure sale;
• the tenant agrees to sign a month-to-month rental agreement on a HUD prescribed form at the time the property is conveyed to HUD;
• the tenant has the financial ability to pay the agreed rent;
• the tenant must pay one month’s advance rent upon signing the rental agreement;
• the tenant must allow access to the property during normal business hours to:
  • HUD representatives for a physical inspection of the property, with two days’ notice;
  • HUD contractors for repairs with two days’ notice; and
  • real estate brokers and their clients with two days’ notice; and
• every resident of the property must provide his complete social security number.

 

If the tenant or the property does not meet these requirements allowing the tenant to remain on the property after HUD takes title, then the lender must determine whether the protections granted by PTFA’s 90-day notice to vacate are applicable.

PTFA is applicable if:

• the tenant occupies the property under a bona fide lease agreement, held with the prior owner, at fair market rent; and
• the lease agreement was entered prior to the foreclosure sale.

PTFA protections do not apply when the foreclosed-out owner or child, spouse, or parent (relatives) is the tenant. If PTFA applies, the lender must promptly issue the tenant a 90-day notice to vacate and, upon the tenant vacating, transfer title to HUD.

The PTFA protections expire December 31, 2014.

Related article:

Residential tenants, foreclosure and possession

Editor’s Note —Under a tenant-occupied conveyance to HUD, the tenant can later be required to vacate the property upon 30 days’ notice. This notice may be served at the government’s convenience. Due to increased uncertainty resulting from this shortened time requirement under an occupied conveyance to HUD, tenants may find the protections of PTFA preferable, and vacate the property with PTFA’s prolonged 90 days’ notice, before it is conveyed to HUD.

Related topics:
federal housing administration (fha), foreclosure, lease agreement, mortgage default, rental

Posted by ft Editorial Staff | Feb 1, 2012 | Licensing and Education, New Laws, Real Estate | 0

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

These amendments define the terms and statements which can be used in the license designations required of real estate licensees and industry professionals in advertisements and other materials distributed to the public.

DRE Regulation Article 9 Section 2770.1
Amends Article 9 and Section 2770.1
Effective: October 26, 2011

If a Department of Real Estate (DRE) licensee publishes, circulates or distributes material in a newspaper, periodical or mailing related to his real estate-related activities which require a license, the licensee must include with the material a license designation disclosing he is performing activities which require a license. (These materials exclude classified rental advertisements listing the telephone number or address of the rental property.) [Calif. Business and Professions Code §10140.6 (a)(c)]

Use of the following terms and abbreviations, or similar terms and abbreviations, fulfill the license designation required in Calif. Business and Professions Code §10140.6 (a)(c): 

• broker;
• agent
• Realtor;
• loan correspondent;
• bro.; or
• agt.

However, use of the terms and abbreviations above does not fulfill the license designation required of:

• a licensee or mortgage loan originator (MLO) disclosing his DRE number or Nationwide Mortgage Licensing System (NMLS) identifier in any advertisement distributed primarily in California [Calif. Business and Professions Code §10235.5]; and

a person, placing a loan advertisement distributed primarily in California, disclosing the license under which the loan will be arranged and the state regulatory entity supervising the loan transaction (if the advertisement is related to unlicensed lending activity, the license designation must disclose the loan would be arranged by an unlicensed person not supervised by a state regulatory entity). [Bus & P C §17539.4].

DRE Regulation Article 16 Section 2847.3
Amends Article 16 and Section 2847.3
Effective: October 26, 2011

Use of either of the following statements fulfills the requirements of Business and Professions Code §10140.6(a)(c), §10235.5 and §17539.4 explained above in Article 16 Section 2847.3:

• Real estate broker, California Department of Real Estate; or
• California Department of Real Estate, real estate broker.

A dash (–) may be used in place of the comma in either of the statements above. The type size of either of the statements must be no less than the smallest type size used in the advertisement copy.

The word “California” may be abbreviated as “CA,” “CAL” or Calif” and the word “Department” may be abbreviated as “Dept.”

Editorial note – Calif. Business and Professions Code §17539.4 does not apply to banks, bank holding companies, savings associations, federation associations, industrial loan companies, credit unions or any subsidiary or affiliate of these entities if any of these entities are not licensed. Thus, neither DRE Regulation Article 9 Section 2770.1 nor DRE Regulation Article 16 Section 2847.3 apply to any of these mortgage banking entities.

Related topics:
license, mortgage loan broker (mlb), new laws 2011

Posted by Jeffery Marino | Aug 3, 2012 | Feature Articles, Laws and Regulations, Real Estate, Your Practice | 2

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

Congress has deemed arbitration to be unworthy of Wall Street — so what place does it have in real estate transactions?

Arbitration reconsidered

first tuesday is among the first and most outspoken critics of arbitration as the preferred method of dispute resolution in real estate transaction agreements. We have been consistent and clear on this issue for over 30 years: arbitration is a deeply flawed form of alternative dispute resolution (ADR) that ought to be banished from all real estate purchase agreements.

In addition to its predominance in the real estate trade union “standard” forms, arbitration has wriggled its way into all variety of transaction agreements. The clause has found near universal acceptance and integration into nearly every form we are expected to sign in even the most mundane daily transactions. Indeed, one cannot see a new physician, open a bank account or purchase a vehicle without being expected to sign away their rights to litigate in a court of law.

When it comes to transactions of greater financial significance and risk, such as purchasing stock in a publicly traded company, regulators are beginning to pay closer attention to arbitration’s myriad flaws. Since the financial crisis and the inception of the Consumer Financial Protection Bureau (CFPB) under the Dodd-Frank Wall Street Reform and Consumer Protection Act, arbitration provisions in legal agreements of weighty financial consequence are being scrutinized with a very critical eye.

Related articles:

Bargaining for justice: arbitration and the loss of judicial review

Bargaining for Justice: deconstructing the arbitration provision

Not good enough for Wall Street

Arbitration’s latest rejection has taken place in the financial services world. A huge player in private equity, the Carlyle Group has taken considerable heat from investors and the Securities and Exchange Commission (SEC) over its recent filing for an Initial Public Offering (IPO).

Carlyle’s IPO included a controversial arbitration provision that would have barred investors in its stock from bringing a class-action lawsuit against the firm in the event of wrongdoing. Instead of allowing its shareholders the right to litigate against the firm in a court of law, the Carlyle Group proposed to limit all disputes to a confidential, compulsory and binding arbitration proceeding.

Although shareholders were up in arms over the provision from first blush, it took a stern letter from the Senate before the SEC got on board. The Senate urged the SEC to reject the inclusion of the arbitration provision, as “private securities litigation is an indispensable tool with which defrauded investors can recover their losses” without government intervention.

The Senate letter goes on to state that the inclusion of a forced and confidential arbitration provision in the Carlyle Group’s IPO “would deprive investors of important, congressionally established rights.” After much consternation among investors, the Senate and the SEC, Carlyle pulled the arbitration provision from its IPO. Step one, in the movement to recover contract rights.

Related article:

U.S. Senate: Letter on Carlyle IPO Provisions

The case of Carlyle’s failed attempt at forcing an arbitration provision on its shareholders is significant for two reasons:

• it shows how pervasive arbitration has become; and
• it provides a very current and powerful message from the Senate that arbitration is not an acceptable form of dispute resolution.

This begs the question: if arbitration is unacceptable for Wall Street investors, why is it tolerated for end-user buyers of real estate? Investors in a private equity firm are savvy enough to recognize that forced arbitration is a raw deal, and the Senate is willing to stand up for them. Yet the notion remains that agreeing to binding arbitration in real estate transactions is “standard practice.”

Not good enough for the CFPB

The SEC isn’t the only regulator keeping tabs on arbitration. We recently reported that the CFPB has begun inquiries into the arbitration provisions found in consumer financial services agreements as well.

Real estate purchase agreements differ by state and do not constitute a legal contract for a financial product. Thus, real estate purchase agreements do not fall under the purview of the CFPB. Instead, the CFPB is focusing on arbitration clauses mandated by corporations covering credit cards, bank accounts, gift cards and loans from payday lenders. While mortgages have yet to make the arbitration watch list, they are the subject of a broader inquiry into mortgage lending practices, including a mandate for a revised good faith estimate (GFE).

Related articles:

Lender GFE abuse

CFPB: Request for information for upcoming study on use of arbitration agreements in consumer transactions

The study of arbitration provisions in agreements for consumer products and services is required by Dodd-Frank and still within the public comment period. Although referred to as “public”, these comment periods are typically a time for industry professionals and lobbyists to argue against change.

Arbitration has been adopted by members of the financial services industry for one reason: it maintains an asymmetry of power in the corporation’s favor, eliminating the consumer’s right to judicial review and keeping the control on the corporation’s side, as they pick the arbitrator and typically have close “relationships” with providers of arbitration services.

But, it appears the CFPB is on to them. No changes have occurred yet, but rest assured those who have a vested financial interest in keeping arbitration provisions in their contracts are very worried with the new sheriff in town breathing down their necks.

However, we must once again ask the obvious question: what about buyers and sellers of real estate? If arbitration does not belong in a contract for a credit card or an investment in assets such as stocks, what business does it have in a real estate purchase agreement?

Not good enough for real estate

A brief look through the annals of first tuesday’s Recent Case Decisions reveals one glaring truth: the arbitration provision does not belong in real estate purchase agreements. It leads to:

• misinterpretation of the law;
• erroneous awards;
• the lost right to judicial review; and
• a lack of legal precedent.

Unfortunately, it seems that average buyers and sellers of real estate have yet to win the favor of any regulatory watchdogs. Transactions are made everyday with flawed trade union purchase agreements, used as a matter of “standard practice” and all-to-often signed with a blind eye for the highly damaging arbitration provision.

Fortunately, average buyers and sellers of real estate have their own personal watchdog built in to every transaction: their agent.

Usually from erroneous fear of engaging in the unauthorized practice of law or of killing the deal, many agents refuse to address the ramifications of their client initialing the arbitration provision in their purchase agreement. This is one aspect of real estate broker/agent custom that must change as it is inconsistent with law.

It is not engaging in the unauthorized practice of law to explain the consequences of a provision in a contract you have furnished your client with. It is, in fact, your duty to explain it. Further, fear not killing the deal — your client will thank you for your candor and you will be rewarded for looking out for their best interest. Transparency is the free flow in information, and most agents and all brokers have this information on their mind.

Although arbitration provisions in real estate trade union purchase agreements have yet to garner any scrutiny from regulators, there are a number of readily available solutions to this insidious issue:

• use a purchase agreement form that does not include an arbitration provision; or
• counsel your client that they are not required to initial the provision in order to enter into or close the deal.

The first solution is a no-brainer. There are many real estate forms superior to those produced by the trade unions and they do not include an arbitration provision (first tuesday has been publishing California real estate purchase agreements free from the provision for over 30 years).

If you are among the ranks of those who stalwartly refuse to change their forms provider, or if you are an agent who does not have a choice as your broker is intractable and refuses change, simply warn your client of the consequences involved in agreeing to binding arbitration and inform them that they are not required to initial the provision.

Until one of our regulatory agencies in the real estate industry (the DRE?) steps up and recognizes the deleterious effects of arbitration, it remains the responsibility of brokers and agents to protect their clients from agreeing to the clause. If it’s not good enough for Wall Street investors, it’s not good enough for your clients.

Mediation is the happy medium

Arbitration was born out of a genuine desire to save on court costs, expedite the dispute resolution process and generally improve the efficiency of the real estate marketplace. It has become quite clear, however, that arbitration has grown into a monster that now rages out of control, demolishing the reason and practical purposes it was founded upon.

There is a very simple solution — mediation. Mediation provides all of the benefits of arbitration but without the costs. Rather than requiring parties to a transaction agreement to sign away their rights and lose the benefit of judicial review, mediation allows for an alternative to litigation while allowing for judicial recourse if necessary.

Also key: contracts containing mediation provisions rather than arbitration provisions eliminate the “need” for an attorney fees provision. By requiring each party to bear their own court costs win, lose or draw, the lack of an attorney fees provision discourages complainants from escalating the dispute to full-blown litigation — an organic means of fostering low-cost, low-consequence dispute resolution by way of eliminating legal jargon rather than adding it ad infinitum.

If you haven’t done so lately, pull out a copy of your “standard” purchase agreement. If it includes an arbitration provision or attorney fee provision, seriously consider switching forms — it will save you and your client from dire consequences.

 

Related topics:
arbitration, consumer financial protection bureau (cfpb), dodd-frank wall street reform and consumer protection act, mediation, wall street

Posted by ft Editorial Staff | Jan 1, 2012 | Feature Articles, Finance, Laws and Regulations, Real Estate | 6

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

This article discusses the purported moral implications of a homeowner’s decision to strategically default and why no such implications exist for a strategically defaulting business.

Is a strategic default un-American?

In their collective effort to encourage homeownership by any means necessary, the government and the media make no apologies for characterizing the strategically defaulting homeowner as an unpatriotic contradiction to capitalism.

As the jobless Lesser Depression continues wreaking havoc on home values and shriveling opportunities for the unemployed, speeches and press conferences by society’s figureheads continue emphasizing the importance of sending the “right message” to your family by paying back what you promised to pay.

Why aren’t those same figureheads pointing fingers at strategically defaulting businesses?

It seems a business that chooses to declare bankruptcy at the opportune moment to preserve cash flow is a wisely managed entity in the eyes of financial analysts everywhere, but a homeowner who does the same is labeled a cheat. The ability to strategically default with impunity is unique to businesses since the concept of morality in finance varies depending on whether it’s businesses or individuals involved.

The double standard

Political rhetoric aside, the decision to strategically default is not a moral decision. Every trust deed contains a put option, a contract provision requiring the lender to buy the home on any default. Homeowners are not committing a crime (or even a theological no-no) by exercising their put option, but merely making a wise financial decision in light of current economic conditions. [For more information regarding the put option, see the July 2011 first tuesday article, Strategic default smarts.]

Declaring bankruptcy is very commonly used in the business world as a sort of restart button; a chance to pare down debt before it gets out of hand. American Airlines recently declared bankruptcy, but not as a last ditch effort to salvage the company. They made a tactical decision to cut their losses, shed some debt, get competitive standing and preserve their earnings — and investors rewarded them for it.

Underwater homeowners can do the same, but most don’t because of the perceived social and seemingly moral consequences. Though businesses are commended for a strategic bankruptcy to avoid going under, homeowners who owe more than their homes are worth are warned not to employ the same wisdom for fear of public ridicule and a scarlet letter from their lender.

What’s ironic is organizations that criticize the strategic default have chosen to strategically shed their black-hole assets themselves. The Mortgage Bankers Association (MBA), whose president has publicly argued that strategic default “sends the wrong message” to society, recently completed a deliberate shortsale of its headquarters for millions of dollars less than the remaining principal balance of the building’s mortgage – no recourse of course.

Strictly business

While the government drones on about an underwater homeowner’s moral duty to faithfully pay his mortgage through thick and thin, lenders focus only on the bottom line when making financial decisions. Lenders could approve more modifications or principal reductions for the unemployed and beleaguered in the name of morality, but they choose profit (read: sound business decisions) over social responsibility every time.

Washington and Wall Street have deliberately confused homeowners by muddling the difference between moral decisions and business decisions. Lenders have no problem forgiving the debt of big business politicians because it earns them political clout. In the long run, it is more lucrative to stay in the good graces of politicians and business executives, which makes forgiving their debt a rational decision. [For more information regarding public policy and homeownership, see the October 2010 first tuesday article, Is homeownership a luxury or a necessity? and the March 2011 first tuesday article, The home mortgage tax deduction: inducing debt and stifling mobility.]

Debt forgiveness for one homeowner, on the other hand, means debt forgiveness for all homeowners, and that is just too much lost profit. [For more information regarding principal reduction, see the January 2011 first tuesday article, The inconsistent cramdown policy.]

Many homeowners unknowingly made bad decisions when they were encouraged by everyone to borrow money under subprime lending conditions. But lenders who made loans with adjustable interest rates and no down payments must also be held responsible for their part. As long as underwater homeowners keep faithfully paying their mortgages, lenders suffer a lesser degree of consequences for their irresponsible, overzealous behavior during the Millennium Boom.

De-occupying our homes

Lenders have made it clear they won’t budge; they fully expect homeowners to pay their mortgage no matter what. Homeowners who disagree must actively decide to stop paying their mortgage and walk away from the property, a mere exercise of the put-option written into their mortgage contracts.

The Occupy Wall Street (OWS) diaspora has migrated to foreclosed homes around the country, their motive being to stop lenders from taking homes through foreclosure. But if OWS really wants to vindicate underwater homeowners, they will picket to force lenders to take back the collateral no longer worth the amount borrowed. [For more information regarding OWS, see the December 2011 first tuesday article, OWS occupies foreclosures.]

If homeowners want to salvage their finances, they will stop believing the government- and lender-endorsed rhetoric of the good American borrower and stop making personally pointless mortgage payments.

Related topics:
bankruptcy, cramdowns, millennium boom, mortgage, occupy wall street (ows), principal reduction, put option, short sale, strategic default, trust deed