Posted by ft Editorial Staff | Apr 12, 2010 | New Laws, Real Estate | 2

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

For a total list of all the real estate laws digested by first tuesday for the 2009-2010 legislative session, click here.

Updated 5/12/2010

Topics:

1. Tax credit on the purchase of a principal residence

Reported by Alex Gomory

The rules reported here establish the California state tax credit’s eligibility requirements when purchasing a new residence.

Tax credit on the purchase of a principal residence
Revenue and Financial Code §17059.1
Added by A.B. 183
Effective: May 1, 2010

A new tax credit – prepaid amounts of taxes over three years – is available to homebuyers of qualified principal residences who:

• close escrow between May 1, 2010 through December 31, 2010; or
• enter into an enforceable purchase agreement (PA) by December 31, 2010 and close escrow between December 31, 2010 and July 31, 2011.

A qualified principal residence is:

• a single-family residence (SFR) that is new construction and has never been occupied; or
• any SFR, new or existing, purchased by a first-time homebuyer.

A first-time homebuyer is any individual who has not purchased or owned a principal residence within three years prior to the close of escrow on the qualified principal residence.

A homebuyer must occupy the property as his principal residence for at least two years immediately following the purchase. If not, any remaining unapplied credit will be canceled and any previously applied credit will be recaptured. The homebuyer will be liable for any increase in tax attributable to the recapture of any credit previously allowed under the tax credit.

The amount of the tax credit is the lesser of:

• five percent of the purchase price of the purchase residence; or
• $10,000 — in the form of a $3,333 reduction each year for three years.

Editor’s note — If a homeowner is delinquent on state taxes, they can still qualify for the tax credit, but the amount they owe the state will be deducted from the five percent or $10,000 they are allotted.

The tax credit will be taken in equal amounts over three consecutive taxable years, beginning with the year escrow closes on the purchase. A homebuyer may only claim a tax credit once.

A homebuyer may not claim either tax credit if:

• he was already permitted credit under the California state tax credit of 2009;
• he is not 18 or older as of the close of escrow, unless he was married at the date of purchase, and his spouse is 18 years or older on the date of purchase;
• his spouse is related to the seller; or
• he qualifies as a dependent of any other taxpayer for the taxable year of the purchase.

For purchase of an unused, newly-constructed qualified principal residence that has never been occupied a homebuyer may reserve a credit prior to close of escrow. To reserve a credit for the new home, the homebuyer and seller (builder or REO lender) must jointly sign and submit evidence that they have entered into an enforceable PA to the Franchise Tax Board (FTB) between May 1, 2010 and December 31, 2010.

To receive the tax credit, within two weeks after the close of escrow of a qualified principal residence the homebuyer must provide the FTB with:

• a copy of the properly executed settlement statement; and
• one of the following:
• if the property has never been occupied, a certification by the seller that the property has never been occupied; or
• if the property is purchased by a first-time homebuyer, a certification by the homebuyer that he is a first-time homebuyer.

Editor’s Note — The certification form will be included in the homebuyer’s application for the tax credit to be released by the FTB prior to the May 1, 2010 effective date.

 

If married homebuyers who qualify for the credit file separately, the credit allowed will be equally apportioned between them.

If two or more non-married homebuyers are claiming the tax credit for the purchase of a qualified principal residence, the amount of the credit allowed will be allocated to each individual based on percentage of ownership.

The credits will be distributed on a first-come, first-serve basis. The total amounts of credit that may be allocated under this tax credit are:

• $100,000,000 for qualified principal residences that have never been occupied; and
• another $100,000,000 for first-time homebuyers.

Once the allotted credits have been exhausted, the FTB will establish a wait list for subsequently received certifications.

The FTB will inform waitlisted homebuyers by December 31, 2011 whether or not they will receive a credit.

The tax credit will be claimed by the homebuyer unless they were on the waitlist and received the credit on a qualified principal residence that was purchased in the 2010 taxable year, in which case the homebuyer may claim the credit on an amended income tax return for that taxable year.

Editors note — In order to apply for this tax credit, applicants must apply by fax only at (916) 855-557. The date and time stamp on the fax will be used in determining the allocation of the credit according to the first-come first-serve policy and the order of the waitlist.

Related topics:
first-time homebuyer

Posted by ft Editorial Staff | Aug 9, 2010 | New Laws, Real Estate | 0

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

For a total list of all the real estate laws digested by first tuesday for the 2009-2010 legislative session, click here.

Topics:

1. Adverse possessors need proof they paid the property taxes
   

Reported by Kelli Galippo

This amendment revises the process of transferring property ownership through adverse possession.

Adverse possessors need proof they paid the property taxes

Code of Civil Procedure §325
Amended by A.B. 1684
Effective: January 1, 2011

In order to acquire title to a property under a claim of adverse possession, the individual claiming adverse possession must now provide a certified record of tax payments from the county tax collector to prove he has paid the property taxes for at least five years.

Related topics:

Posted by ft Editorial Staff | Dec 13, 2010 | Buyers and Sellers, FARM Letters, Real Estate | 1

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

Use this FREE first tuesday FARM letter copy in your marketing! Have a topic you’d like us to write about? Email editorial@firsttuesday.us and let us know!

Many sales factors are to be considered when setting the most competitive asking price for your home. A well-considered asking price for a home is a price carefully based on market conditions.

Be realistic about the sales price you are actually willing to accept for your home today so you are prepared when you receive an offer. A common mistake homeowners make is setting expectations about the price they feel they should get for their home at what they believe will be its future value, or even what they might have gotten years prior, called dollar illusions.

Don’t forget that the present dollar value of a home to a buyer is directly, though inversely, tied to interest rates. The price you get for your home will only be as high as the amount of financing a buyer can get, and that is based on interest rates and mortgage payments equal to roughly 31% of the buyer’s monthly income.

When interest rates increase, as they will at some point in this recovery after jobs pick up, the amount of money lenders will lend a buyer decreases. Thus, the amount of loan funds available to the buyer to assist in the purchase of a home, plus the down payment limits their selection of a home to those priced by sellers to accommodate this shift.

Pricing your home is less about its dollar value as you perceive it, and more about what the market conditions allow. If interest rates rise even half a percentage point, a buyer is then able to borrow less money than before — tens of thousands of dollars less for more expensive homes.

A proper asking price for your home is initially the most effective step for selling a home quickly, and voluntary transparency about the physical condition, possible hazards and security aspects of your home will hasten that sales process.

Related topics:
sales

Posted by ft Editorial Staff | Oct 22, 2010 | Buyers and Sellers, FARM Letters, Real Estate | 0

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

Use this FREE first tuesday FARM letter copy in your marketing! Have a topic you’d like us to write about? Email editorial@firsttuesday.us and let us know!

A few eye-catching improvements to your home’s exterior will make your home stand out.

Seasonal flowers and a fresh coat of paint can draw buyers to your property, while patchy grass and a cracked driveway can make buyers drive away without getting out of their car.

A few of the following tips will help you attract buyers instead of scaring them away.

• A power washer can make the outside of your home look brand new. Clean the siding, clear out the cobwebs on the ceiling of your porch, power wash fences and push the dirt off the driveway. Do not power wash your roof, as it can cause damage to shingles or tiles.
• Thoroughly clean water related features. Remove leaves, debris and algae from ponds, water fountains or birdbaths. Make sure to clean the water filter for clear water.
• Ensure your lawn sprinklers and any misters are in working order. If any sprinkler and emitter heads are malfunctioning or you noticed a dying patch of grass, have the system professionally repaired.
• Bring color to your yard with flowerbeds and mulch. Use contrasting colors to make the flowerbeds pop: light mulch, dark plants or dark mulch, light plants.
• When trees and shrubs get out of control, trim them into squares or spheres. You can do this easily with electronic hedge clippers. A landscaper’s tip for easier trimming: lay a sheet or tarp around the bush before you begin trimming so they can be easily picked up and thrown away.
• A new welcome mat will make your front porch more inviting.
• Don’t forget the backyard, especially if it can be viewed from the street.

A day working in the yard will make a huge difference in bringing buyers through the front door and, hopefully, to the bidding table.

Related topics:
maintenance, sales

Posted by ft Editorial Staff | Oct 22, 2010 | Buyers and Sellers, FARM Letters, Real Estate | 0

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

Use this FREE first tuesday FARM letter copy in your marketing! Have a topic you’d like us to write about? Email editorial@firsttuesday.us and let us know!

The housing market can be tough on sellers. In a buyer’s market, few buyers want to buy a house with a turnkey to-do-list, unless the price is deeply discounted.

A few small and inexpensive repairs will make your property show better, sell faster, and get closer to your price.

First Impressions

• Entryway: An easy way to make your house stand out is to paint your front door. Also, consider replacing the screen door if the parts are bent or the screen is sagging.
• Roof: Repair any loose or missing shingles or tiles. Clean off any plant or animal materials that will make the exterior of your house look neglected.
• Gutters: Clear out the gutters and repair any that are hanging loosely. Re-caulk the gutter end caps.
• Yard: Re-seed any bald spots in your lawn. Plant some inexpensive flowers for color. Groom the lawn and bushes. Mulch is an attractive way to quickly improve the property’s curb appeal.
• Fence: Clear weeds from the fence line. Repaint wooden fences and replace any damaged parts.
• Driveway: Patch cracks in the driveway or walking surfaces.
• Siding and Porch: Power wash the siding or porch to remove built up dirt or cobwebs.

Inside the house

• Flooring: Replace any damaged hardwood boards and vinyl flooring. Cleaning the carpets is crucial.
• Windows: Replace any broken or cracked windows. Thoroughly clean all the screens.
• Plumbing: Replace the toilet seat. Fix any leaky faucets. Re-caulk tubs and sinks as needed.
• Paint: Painting is an easy and inexpensive way to make your home shine. If repainting the whole house isn’t an option, focus on the baseboards and crown molding. If you do plan to repaint the walls, patch any flaws in the wall with lightweight putty first.
• Lighting: Update old light switches and replace bulbs with energy efficient ones, both inside and out.
• Cabinets: If your cabinets appear clearly dated, it may be a good idea to replace the hardware and either repaint or resurface them.

Related topics:
maintenance, sales

Posted by ft Editorial Staff | Oct 22, 2010 | Buyers and Sellers, FARM Letters, Real Estate | 0

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

Use this FREE first tuesday FARM letter copy in your marketing! Have a topic you’d like us to write about? Email editorial@firsttuesday.us and let us know!

In a buyer’s market, sellers need every advantage they can get. Home staging is an excellent way to highlight your property’s strengths. You can hire professional home stagers, or you can use the following home staging tips yourself before your next open house.

Make the buyer imagine himself in your home. It is important he feels comfortable and not distracted. You can do that by:

• depersonalizing the home by removing family photos, kid’s toys, toiletries, etc.
• painting in neutral colors. Buyers can imagine putting their own color palettes on the walls.
• remove excess furniture and clutter. So less is more; too much furniture will make the home feel and appear small.

Buyers are looking for the most amount of house for the least amount of money. To give the impression the property is upscale and luxurious, you can:

• clean every inch of the house like the several thousand dollars depends on it — because it does.
• replace outdated fixtures such as cabinet hardware, ceiling fans or old faucets with sophisticated and updated versions — they are noticed.
• improve the lighting in your house with energy efficient bulbs for a warm and inviting atmosphere. Aim for a total of 100 watts for every 50 square feet. Mix up your lighting options, ambient (general or overhead), task (pendant, under cabinet or reading) or accent (table and wall).
• complete any unfinished projects. A house with a to-do-list is a quick turn off for buyers.
• purchase slip covers, some new bed covers and color-coordinated towels. These purchases can really dress up your existing furnishings and they go with you after the move.
• decorate with fresh flowers and candles. The smell of a home during an open house is almost as important as the way it looks.

Related topics:
maintenance, sales

Posted by ft Editorial Staff | Feb 3, 2010 | New Laws, Real Estate | 0

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

For a total list of all the real estate laws digested by first tuesday for the 2009-2010 legislative session, click here.

Topics:

1. Tax requirements for reviving a limited partnership
2. Loan agreements secured by real estate to be provided in translation
3. Limits on HOA fees
4. HOA CC&Rs may not prohibit water-efficient landscaping
5. Transfer taxes and notice in change of ownership
6. New regulations for assessment reduction services
7. Financing energy efficiency
8. Property is nuisance if it is inhabited by tenants found guilty of counterfeiting
9. Common interest development management must provide written disclosures to members
10. Escrow agent licensing
11. Regulation of water pollution — water softeners
12. Impounds may be mandated on Regulation Z loans or their modification

Reported by Giang Hoang-Burdette

Tax requirements for reviving a limited partnership

Corporations Code §15902.09 and Revenue & Taxation Code §19591
Amended by A.B. 1546
Effective January 1, 2010

A cancelled domestic limited partnership must now file tax returns for each taxable year between the cancellation of its certificate and its revival before it will be issued a certificate of revival.

A specialized tax service fee of $100 will be charged for a letter for confirmation of limited partnership revival for requests made prior to January 1, 2011. On or after January 1, 2011, the fee will be set by regulation in keeping with the costs for providing the specialized tax service.

Loan agreements secured by real estate to be provided in translation

Civil Code §1632.5
Amended by A.B. 1160
Effective the later of July 1, 2010 or 90 days after the creation of the form referenced below*

Any bank, savings association or credit union negotiates a loan agreement in Spanish, Chinese, Tagalog, Vietnamese or Korean, a translated version of the loan agreement must be provided to the borrower no later than three days after the receipt of the written application. If any of the terms of the loan agreement change after the translated version is provided but prior to the loan closing, a translated version of the updated agreement must be provided to the borrower.

This section does not apply to a bank, savings association or credit union which negotiates primarily in one of the above languages if:

• the negotiating party uses his own interpreter;
• the interpreter is not a minor;
• the interpreter is fluent in English and the language of the negotiations; and
• the interpreter is not an employee of the bank, savings association or credit union.

A translated form does not need to translate any of the following:

• names and titles;
• addresses;
• brand names, trade names, trademarks or registered service marks;
• full or abbreviated designations of the make or model of goods;
• alphanumeric codes; or
• individual words or expressions with no non-English translations.

The contract in English will control the rights and obligations of the parties. The translated version will be admissible as evidence in case of a substantial difference in the material conditions of the agreement.

Failure to provide a translated loan agreement may result in a penalty of:

• $2,500 for the first violation;
• $5,000 for the second violation; and
• $10,000 for each subsequent violation.

Licensing agencies have the authority to enforce this provision, including investigating and examining books and records. Reasonable charges for these activities may be charged. Any bank, savings association or credit union which violates this provision will be considered to be in violation of its licensing law.

The Department of Corporations and the Department of Financial Institutions will create a form summarizing the terms of a mortgage loan. This form will be made available in each of the preceding languages. *

These provisions do not apply to federally chartered banks, savings associations or credit unions, or real estate brokers.

Reported by Nick Love

Limits on HOA fees

California Civil Code §1366.4
Added by A.B. 313
Effective: January 1, 2010

A homeowners’ association (HOA) cannot assess fees on individual units within a common interest development (CID) based on the assessed value of the units as set by the county assessor unless on or before December 31, 2009, the HOA assessments were already based on those assessed values.

An HOA that is responsible for paying taxes on individual units within a CID is an exception and may charge fees on the separate units related to the HOA’s payment of property taxes for those units.

Editor’s Note – HOA assessments have nothing to do with the time a unit was purchased as that moment bears no relationship to the current costs of maintaining the unit compared to all other units of equal size that require equal service from the HOA. Assessment based on the time a unit was purchased is an entirely inequitable way to assess property value, whether in an HOA situation or a valuation from the county assessor’s office.

HOA CC&Rs may not prohibit water-efficient landscaping

California Civil Code §1353.8
Repealed & Added by A.B. 1061
Effective: January 1, 2010

Homeowners’ associations (HOAs) were previously restricted from prohibiting low water-use plants, but now any Covenants, Conditions, and Restrictions (CC&Rs) of an HOA are void and unenforceable if the CC&Rs:

• prohibit in any way the use of low water-use plants; or
• prohibit or restrict compliance with:
  • local and state water-efficiency landscaping ordinances; or
  • water conservation programs or programs for drought relief.

Nothing in this section prohibits an HOA from creating and enforcing uniform landscaping that does not conflict with local and state water-efficiency landscaping ordinances, water-conservation law or drought relief programs.

Determining Documentary Transfer Tax

Revenue and Taxation Code §408
Amended by S.B. 816:
Effective: January 1, 2010

An assessor must allow the county recorder access to all information possessed by his office when the county recorder conducts an investigation to determine a documentary transfer tax (DTT), which is paid on the conveyance of an interest in property.

45 day deadline for notifying the State Board of Equalization of a change in control of a legal entity

Revenue and Taxation Code §480.1
Amended by S.B. 816:
Effective: January 1, 2010

A corporation, partnership, limited liability company (LLC), or other legal entity must submit a signed change of ownership statement to the State Board of Equalization within 45 days from the date of any change in control.

 

Notice in the change of ownership statement

Revenue and Taxation Code §480.2
Amended by S.B. 816:
Effective: January 1, 2010

The change of ownership statement must contain the following notice with the title in at least 12-point boldface type and the body in at least 8-point boldface type:

Important Notice

 

The law requires any corporation, partnership, LLC, or other legal entity owning real property in California subject to local property taxation and transferring shares or other ownership interest in such legal entity which constitute a change in ownership pursuant to subdivision (d) of Section 64 of the Revenue and Taxation Code to complete and file a change in ownership statement with the State Board of Equalization at its office in Sacramento.  The change in ownership statement must be filed within 45 days from the date that shares or other ownership interests representing cumulatively more than 50 percent of the total control or ownership interests in the entity are transferred by any of the original coowners in one or more transactions.  The law further requires that a change in ownership statement be completed and filed whenever a written request is made therefore by the State Board of Equalization, regardless of whether a change in ownership of the legal entity has occurred.  The failure to file a change in ownership statement within 45 days from the earlier of the date of the change in ownership of the corporation, partnership, LLC, or other legal entity, or the date of a written request by the Board of Equalization results in a penalty of 10 percent of the taxes applicable to the new base year value reflecting the change in ownership of the real property owned by the corporation, partnership, LLC, or legal entity (or 10 percent of the current year’s taxes on that real property if no change in ownership occurred).  This penalty will be added to the assessment roll and shall be collected like any other delinquent property taxes, and be subject to the same penalties for nonpayment.

 

Failure to file a change of ownership statement results in added penalty

 

Revenue and Taxation Code §482
Amended by S.B. 816:
Effective: January 1, 2010

Failure to file a change of ownership statement within 45 days from the earlier of the date of the change in control or the change in ownership of a corporation, partnership, LLC or other legal entity will result in a penalty of:

• 10% of the taxes applying to the new full cash value of the change in control of real estate owned by the corporation, partnership, LLC or other legal entity
• 10% of the current year’s property taxes if no change in control or ownership occurred.

This penalty will be added to the property taxes due on all taxable properties owned by the corporation, partnership, LLC or other legal entity.

Revenue and Taxation Code §11935
Added by S.B. 816:
Effective: January 1, 2010

A corporation, partnership LLC or other legal entity may pursue an administrative appeal process to resolve any disputes regarding the DTT

Even if the DTT is determined by an administrative appeal process or established by a court, the valuation used to determining DTT has no affect on a valuation for the purposes of determining property taxes.

Reported by Bradley Markano

New regulations for assessment reduction servicers

Business and Professions Code § 17537.9
Amended by A.B. 992
Effective: January 1, 2010

A person who offers or performs any paid service in connection with the preparation or completion of requests to reduce the assessed value of residential property must not make any untrue or misleading statements in connection with that service. This includes stating that a late fee will be required if the property owner fails to respond to an advertised reduction filing service offer by a certain date.

Anyone who offers assessment reduction service must make the following disclosure:

“THIS ASSESSMENT REDUCTION FILING SERVICE IS NOT ASSOCIATED WITH ANY GOVERNMENT AGENCY. IF YOU DISAGREE WITH THE ASSESSED VALUE OF YOUR PROPERTY, YOU HAVE THE RIGHT TO AN INFORMAL ASSESSMENT REVIEW, AT NO COST, BY CONTACTING THE ASSESSOR’S OFFICE DIRECTLY. IF YOU AND THE ASSESSOR CANNOT AGREE TO THE VALUE OF THE PROPERTY OR IF YOU DO NOT WISH TO CONTACT THE ASSESSOR YOU CAN OBTAIN AND FILE AN APPLICATION FOR CHANGED ASSESSMENT WITH THE COUNTY BOARD OF EQUALIZATION OR ASSESSMENT APPEALS BOARD ON YOUR OWN BEHALF. AN APPEALS BOARD HAS THE AUTHORITY TO RAISE PROPERTY VALUES (BUT IN NO CASE HIGHER THAN THE PROPOSITION 13 PROTECTED VALUE) AS WELL AS TO LOWER PROPERTY VALUES.”

A person who offers assessment reduction services may not charge any money for a request for review until after the request has been filed with the county assessor. Furthermore, they may not charge a fee for an assessment appeal application until an application has been filed with the assessment appeals board.

A person who offers assessment reduction service may not file any request to reduce a property’s assessed value without first obtaining written authorization from the property owner.

A copy of this written authorization must be submitted with any application for assessment reduction. The provider of reduction service must keep the original written authorization for at least three years, and must make it available for inspection and copying within 24 hours of any request from law enforcement, the Attorney General, or a district or city attorney.

[For more information on applying for a reduced assessment, see first tuesday’s article “Reassessment and Tax Reduction Assistance down on the Farm.”]

Disclosure of energy assessment to all prospective buyers of encumbered property

 

Civil Code §§1102.6
Amended by A.B. 474
Effective: January 1, 2010

The seller of a property subject to an assessment by a public agency for the purpose of financing improvements intended to promote renewable energy sources, or energy or water efficiency, must disclose the assessment to all prospective purchasers of the encumbered property. The disclosure is made by delivery of a copy of the “Payment of Contractual Assessment Required” notice recorded by the public agency, or a substantially equivalent notice obtained from another source.

 

Public agencies authorized to create permanent energy efficiency improvement assessment liens.

 

Streets and Highway Code §5898.12
Amended by A.B. 474
Effective: January 1, 2010

 

Public agencies are now permitted to create assessment liens on property, to be voluntarily entered into by the owners, in order to arrange financing and installation of distributed generation renewable energy sources or energy efficiency improvements that are permanently affixed to real estate (including agricultural property). Public agencies may also assess property in order to obtain financing for the installation of water efficiency improvements that are permanently attached to real estate, including recycled water connections, synthetic turf, cisterns for stormwater recovery and permeable pavement. Assessments may not be imposed for appliances or nonpermanent attachments, and may not be used by a developer, builder or subdivider to improve and sell real estate.

A public agency establishing such an assessment program will give advance notice to water and electric service providers in the area.

Public agencies empowered to finance energy and water efficiency

 

Streets and Highway Code §5898.20
Amended by A.B. 474
Effective: January 1, 2010

 

The local governing body of any public agency (including a city, county, municipal utility district, community services district, sanitary distract, sanitation district, water district or irrigation district) may choose to designate the agency as one which can enter into voluntary contractual assessments with property owners for permanent improvements and financing to increase distributed generation renewable energy sources or permanent installations to increase water efficiency.

To do this, the local governing body must create a statement of intention with a description of the intended project, including brief description of the criteria for determining the creditworthiness of the involved property owner.

Property owners may purchase water efficiency equipment

Streets and Highway Code §5898.21
Amended by A.B. 474
Effective: January 1, 2010

 

Authorized public agency officials may provide written permission allowing individual property owners to directly purchase equipment and materials for the installation of water efficiency improvements.

Notices and hearing for the creation of an assessment lien

Streets and Highway Code §5898.24
Amended by A.B. 474
Effective: January 1, 2010

 

A public agency which holds a hearing to create an assessment lien on real estate to finance energy or water efficiency developments will publish notice of that hearing at least 20 days before it takes place, and  continue to publish notice of the hearing at least once a week for two successive weeks.

The local governing body is to provide written notice of any proposed contractual assessment program to all water or electric providers within the boundaries of the area within which the assessments may be entered into. This notice is provided at least 60 days before the legislative body adopts any resolution to create an assessment.

The public agency will establish procedures to respond to inquiries regarding the current and future estimated liability for assessment. Neither the agency nor its local governing body is liable if this estimated liability proves to be inaccurate or a seller fails to request notice of his estimated liability.

For the seller of real estate subject to an energy efficiency assessment to provide notification to prospective buyers, the public agency will record a document with the county recorder. This document will be titled “Payment of Contractual Assessment Required” in at least 14pt. font, and include the following information:

• the names of all property owners subject to the assessment;
• the legal description and assessor’s parcel number for the property;
• the annual amount of the assessment;
• the date or circumstances under which the assessment will expire;
• the purpose for which the funds from the assessment will be used;
• the entity which will receive the funds from the assessment, and the entity’s contact information; and
• the signature of the authorized representative of that entity.

The county recorder will examine this document to determine that it has the information listed above. The recorder is not responsible for any other information in the document. The document is indexed under the names of the property owners subject to the assessment and the name of the entity which receives funds from the assessment.

Reported by Anthony Renaud

Property is a nuisance if it is inhabited by tenants found guilty of counterfeiting

Business & Professions Code §§ 17800, 17802
Added by A.B. 568
Effective: Jan 1, 2010

If a non-residential tenant is convicted of counterfeiting goods to the extent that it constitutes grand theft, then the property used to produce, store or sell those counterfeit goods is deemed a nuisance.

The owner of the property will be notified 30 days prior to the filing of an action to abate the nuisance.

This section is effective until January 1, 2015.

Common interest development management must provide written disclosures to members

 

Calif. Civil Code §§ 1350.7, 1363.005
Amended and added by A.B. 899
Effective: Jan 1, 2010

The managing association of a common interest development (CID) must deliver to any member on request, the following Disclosure Documents Index (DDI):

Disclosure Documents Index
Description	Reference Code
Assessment and Reserve Funding Disclosure Summary	Civil Code §1365.2.5
Pro Forma Operating Budget or Pro Forma Operating Budget Summary	CC § 1365(a)
Assessment Collection Policy	CC §§ 1365(e), 1367.1(a)
Notice/Assessments and Foreclosure (form)	CC § 1365.1
Insurance Coverage Summary	CC § 1365(f)
Board Minutes Access	CC § 1363.05(e)
Alternative Dispute Resolution (ADR) Rights (Summary)	CC § 1369.590
Internal Dispute Resolution (IDR) Rights (Summary)	CC § 1363.850
Architectural Changes Notice	CC § 1378(c)
Secondary Address Notification Request	CC § 1367.1(k)
Monetary Penalties Schedule	CC § 1363(g)
Reserve Funding Plan (summary)	CC § 1365(b)
Review of Financial Statement	CC § 1365(c)
Annual Update of Reserve Study	CC § 1365(a)

The association may transmit the DDI by email or other electronic means, but only if the member signs an agreement to accept correspondence electronically from the association. Any agreement between the association and its members must inform members of:

• the right to a nonelectronic version of any information conveyed electronically;
• hardware and software requirements necessary to receive electronic correspondence; and
• the procedures for updating contact information to receive electronic correspondence.

 

 

 

 

 

 

 

CID management must add disclosures for reserve fund interest rates and replacement cost inflation

 

Calif. Civil Code §§ 1365.2.5
Amended by A.B. 899
Effective: Jan 1, 2010

The Assessment and Reserve Funding Disclosure Summary form must include:

• the fiscal year to which the information pertains; and
• added to paragraph (7), the language:

“At the time this summary was prepared, the assumed long-term before-tax interest rate earned on reserve funds was ___ percent per year, and the assumed long-term inflation rate to be applied to major component repair and replacement costs was __ percent per year.”

Reported by Connor Wallmark

The rules reported here increase the fees paid to the Commissioner of Corporations in connection with escrow licensure and extend the time period to pay these fees.

Increased fees in connection with escrow licensure

Financial Code §17207
Added by S.B. 204
Effective: January 1, 2010

Currently and remaining in effect after January 1, 2010, an escrow agent must pay an annual license fee of up to $2,800 for each office or location they operate from. The Commissioner of Corporations (the Commissioner) may levy a special assessment on each escrow agent for each office or location of up to $1,000 (up from $500) to cover the cost of collecting the annual license fee. The escrow agent has 60 days (up from 30) to pay the special assessment upon receiving notification of the special assessment by mail from the Commissioner.

The rules reported here require the Commissioner of Corporations to determine the surrender of an escrow license is in the public interest for the license to be surrendered.

Surrender of an escrow license

Financial Code §17600
Added by S.B. 204
Effective: January 1, 2010

An escrow license may only be surrendered when the Commissioner of Corporations (the Commissioner) reviews and accepts an escrow agent’s closing audit report and provides written acceptance of the surrendered license. Additionally, the Commissioner must determine the surrender of the escrow license is in the public interest, replacing the requirement that the Commissioner must determine no violation of law occurred.

The rules reported here add eligible surplus line insurers to the list of authorized providers of fidelity bonds and errors and omissions insurance.

Bonding requirements for exchange facilitators

Financial Code §§51003; 51005; 51007
Added by S.B. 204
Effective: January 1, 2010

An exchange facilitator must comply with one or more of the following:

• maintain fidelity bonds of at least $1,000,000 by an authorized insurer or eligible surplus line insurer as determined and published by the Insurance Commissioner;
• maintain errors and omissions insurance of at least $250,000 from an authorized insurer or eligible surplus line insurer as determined and published by the Insurance Commissioner;
• deposit all exchange funds in a qualified trust or escrow account with an institution allowing withdrawals that require the written authorization of the exchange facilitator and his client; or
• deposit at least $1,000,000 of cash, securities or irrevocable letters of credit in an interest-bearing or money market account. The exchange facilitator is entitled to the interest which accrues on the account.

An individual damaged by an exchange facilitator may receive compensation from the exchange facilitator subject to the conditions and terms of the bonds, letters of credit or deposits held by the exchange facilitator. The amount of the bonds, letters of credit or deposits held by the exchange facilitator will be reduced accordingly with each payment made to the damaged individual.

Editor’s note – The Insurance Commissioner issues a list of eligible surplus line insurers every June and December. The list of eligible surplus line insurers can be obtained online here or by calling the Insurance Commissioner at (800) 927-HELP.

Local agency’s authority to regulate salinity input from residential self-regenerating water softeners

Water Code §13148
Added by A.B. 1366
Effective January 1, 2010

The following applies to these areas identified in the California Water Plan:

• the Central Coast;
• the South Coast;
• the San Joaquin River; and
• Tulare Lake.

It also applies to the following counties identified in the California Water Plan:

• Butte;
• Glenn;
• Placer;
• Sacramento;
• Solano;
• Sutter; and
• Yolo.

Any local agency operating a community water recycling facility or sewer system may regulate salinity input from residential self-regenerating water softeners if the regional water quality control board, established under the California Water Plan, has made a finding at a public hearing that a local agency’s control of salinity input would contribute to the board’s water quality goals.  A residential self-regulating water softener is a water softening appliance which discharges brine into the community sewer system.

The regional board’s finding may relate to any of the following water quality control actions:

• a maximum daily load of salinity-related pollution in a body of water;
• a nutrient and salt management plan for a groundwater basin or sub-basin;
• waste discharge requirements for a local agency discharger;
• master reclamation permit for a distributor or supplier of recycled water;
• water recycling requirements for a distributor or supplier of recycled water; or
• a cease and desist order directed at a local agency.

The regional board’s finding must be based on evidence in the record, such as an appropriate study.

Based on a regional board’s finding, a local agency may adopt a water softening ordinance or resolution. The local agency’s ordinance or resolution must be presented at a second, local public hearing and will be adopted no sooner than 30 days from the hearing. The regulation will become effective 30 days from adoption.

Local agency regulations of residential self-regulating water softeners may require:

• residential self-regulating water softeners be certified by the NSF International or American National Standards Institute and be rated at the highest efficiency level commercially available;
• plumbing permits be obtained prior to installing a residential self-regulating water softener;
• residential self-regulating water softeners be connected to hot water only;
• a non-mandatory exchange or buy-back program of pre-existing residential self-regulating water softeners consistent with current law;
• the removal of a pre-existing residential self-regulating water softener, or if not removed, that it be retrofitted with a demand or clock control system; and
• the replacement of a residential self-regulating water softener with an appliance meeting salinity rating requirements.

The local agency may also prohibit the installation of new residential self-regulating water softeners.

If the local agency requires the removal of a pre-existing residential self-regulating water softener, the local agency will compensate the owner of the appliance for the reasonable cost of the removal.

The rules reported here do not limit the use of portable exchange water softening appliances or restrict the authority of the local agency to regulate the discharge from a centralized portable exchange tank servicing facility into the community sewer system.

Impounds may be mandated on Regulation Z loans or their modification

Civil Code § 2954
Amended by S.B. 633
Effective January 1, 2010

A lender cannot mandate impound accounts for payment of taxes, insurance premiums or other purposes relating to single-family, owner-occupied residences.

The exceptions to this rule are:

• home purchases funded by a Regulation Z-controlled as higher priced Section 32 (CAL-32) loans; and
• refinances or loan modifications made in connection with a lender’s homeownership preservation program or other such programs sponsored by a federal, state or local government or a nonprofit organization.

Related topics:

Posted by ft Editorial Staff | Jul 14, 2010 | New Laws, Real Estate | 0

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

For a total list of all the real estate laws digested by first tuesday for the 2009-2010 legislative session, click here.

Topics:

1. Federal First-Time Homebuyer Tax Credit closing date extended through September

Reported by Heather McCartney

The rule reported here extends the deadline for closing transactions that qualify for the Federal First Time Homebuyer Tax Credit.

Federal First-Time Homebuyer Tax Credit closing date extended through September

Internal Revenue Code §1986
Amended by H.R. 5623
Effective: June 30, 2010

The Federal First Time Homebuyer Tax Credit deadline for closing escrow on the purchase of a principal residence and perfecting the right to the subsidy has been extended from April 30, 2010 to September 30, 2010. This extension only affects purchase agreements entered into on or before April 30, 2010.

Related topics:

Posted by ft Editorial Staff | Jun 1, 2010 | New Laws, Real Estate | 0

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

For a total list of all the real estate laws digested by first tuesday for the 2009-2010 legislative session, click here.

Topics:

1. Transfer Disclosure Statement revisions regarding smoke detectors, water heaters and carbon monoxide devices
2. Updated Department of Real Estate continuing education changes

Reported by Heather McCartney

The rules reported here outline new revisions to the transfer disclosure statement (TDS) form regarding residential building safety.

TDS revisions regarding smoke detectors, water heaters and carbon monoxide devices

Civil Code §1102.6
Amended by S.B. 183
Effective: January 1, 2011

Carbon monoxide devices have been added to the list of items mandated to be disclosed, if present on the property, by a seller in Section A of the California Real Estate Transfer Disclosure Statement (TDS) and the Manufactured Home and Mobilehome TDS (Section A). [See first tuesday Form 304]

The TDS now also discloses:

• the existence of carbon monoxide devices on a property is not presently mandated as a precondition of the property’s sale or transfer (as are smoke detectors and water heater bracing); and
• any carbon monoxide devices present on the property might not be in compliance with the law.

The smoke detector no longer appears in Section A. Instead, TDS forms now include a statement requiring the seller to certify the property has or will have an operable, compliant smoke detector on the property on or before the close of escrow on the sale of the property.

The water heater status of being properly braced, anchored, or strapped also no longer appears in Section A. TDS forms now include a statement requiring the seller to certify the property has or will have any water heater present on the property braced, anchored, or strapped on or before the close of escrow on the sale of the property.

The Carbon Monoxide Poisoning Prevention Act definitions

Civil Code § 13262
Amended by S.B. 183
Effective: January 1, 2011

A carbon monoxide device is a device with a distinct audible alarm that notifies occupants when it detects increased levels of carbon monoxide in the air.

The carbon monoxide device may be:

• battery-operated;
• powered by an electrical outlet with battery backup; or
• powered by an alternating current power line of the home.

If the carbon monoxide device is connected to a smoke detector, the combined device must:

• meet all the standards and requirements that apply to both devices; and
• emit an alarm or voice warning that clearly distinguishes between the carbon monoxide warning and the smoke detector warning.

A dwelling includes:

• single family residences (SFRs);
• duplexes;
• dormitories;
• hotels and motels;
• condominiums;
• apartments; and
• multi-unit dwellings.

A fossil fuel is a product that emits carbon monoxide as a byproduct of combustion, such as:

• coal;
• kerosene;
• oil;
• wood;
• fuel gases, including those burned by household gas appliances such as
  • furnaces;
  • water heaters;
  • ranges; and
  • ovens; or
  • other petroleum or hydrocarbon products.

The State Fire Marshal must certify all carbon monoxide devices

Civil Code § 13263
Amended by S.B. 183
Effective: January 1, 2011

Carbon monoxide devices must be certified by the State Fire Marshal before being sold in California. The State Fire Marshal will develop this certification process and criteria.

Noncompliance with Carbon Monoxide Poisoning Prevention Act

Civil Code § 17926
Amended by S.B. 183
Effective: July 1, 2011

An approved carbon monoxide device must be installed in a residential building where a fossil fuel-burning appliance is operating:

• on or before July 1, 2011 for all existing single family residences (SFRs); and
• on or before January 1, 2013 for all other residential units.

The number and placement of carbon monoxide devices within a residential building will be based on the manufacturer’s instructions or the building standards for the relevant type of occupancy. Failure to comply will result in a maximum fine of $200 per offense.

A property owner will be given a 30-day notice to correct a violation of the Carbon Monoxide Poisoning Prevention Act. The owner will be subject to a fine of $100 for failure to correct the violation after the notice.

Failure to comply with the Carbon Monoxide Poisoning Prevention Act will not invalidate any sale or transfer of property.

Landlord/tenant compliance with the Carbon Monoxide Poisoning Prevention Act

Civil Code § 17926.1
Amended by S.B. 183
Effective: January 1, 2011

The owner of a residential rental property must install, test, maintain and repair all carbon monoxide devices in all the rental units, and may enter the premises to do so.

Carbon monoxide device must be operational at the time a tenant takes possession. A tenant must notify the landlord if the carbon monoxide device within his unit becomes inoperable, and the landlord must repair any inoperable carbon monoxide devices.

Six-month suspension of Carbon Monoxide Poisoning Prevention Act

Civil Code § 17926.2
Amended by S.B. 183
Effective: January 1, 2011

If the Department of Housing and Community Development determines there are insufficient numbers of tested and approved carbon monoxide devices available to property owners, then the department may suspend enforcement of the requirements of the Carbon Monoxide Poisoning Prevention Act for up to six months and notify the public by posting its decision on its website.

An owner who has already installed a device due to the Carbon Monoxide Poisoning Prevention Act will not be required to install a new device on an update in building standards relating to the devices until he makes an application for other alterations, repairs or additions to his property costing more than $1,000.

Originally reported by Bradley Markano, updated by Giang Hoang-Burdette

These new regulations from the Department of Real Estate (DRE) affect every California real estate broker and agent, and all educators who provide approved CE courses for broker and agent license renewal. The regulations set out requirements which fundamentally change the process of completing the CE education necessary to renew a DRE licensee.  Revisions to the original proposed changes are shown in blue.

CE Restrictions for brokers and agents

DRE Regulations §3006
Effective: January 1, 2011

Every broker and agent licensed after October 1, 2007 is required to complete 45 hours of continuing education (CE) every four years in order to renew their license. The sales agent fifteen-hour exception for first-time renewal will no longer exist after September 30, 2011.

To ensure that all CE courses, including live CE presentations, are in fact equivalent to 45 hours of actual study time, all CE courses must :

• include 50 minutes of instruction per hour of CE Credit;
• for live courses, require students to be physically present for at least 90% of the time the course is administered (40 hours, 30 minutes, for a 45 hour course), exclusive of the time set for the final exam;
• provide a course outline, with a minimum three pages per credit hour (135 pages for a 45 hour course), each page to have a minimum average of 200 words;
• comply with the Americans with Disabilities Act (ADA);
• have a written statement signed under penalty of perjury by students who take the final exam online, affirming that the person who completes the course is the student; and
• monitor access to “online-only” course reading materials to ensure that the course is not completed in fewer hours than the approved number of credit hours (hence, a student in an “online-only” 45 hour CE course will be required to spend a full 45 hours studying online before accessing the final exam to complete the course).

All CE providers, regardless of whether they offer live or correspondence courses, must:

• maintain their legal entities in good standing with California’s Secretary of State;
• provide the following statement to students before beginning a course: “This course is approved for CE credit by the California Department of Real Estate. However, this approval does not constitute an endorsement of the views or opinions which are expressed by the course sponsor, instructors, authors or lecturers.”;
• quiz students periodically throughout the course of study to evaluate the student’s comprehension and provide feedback on these evaluations to the student;
• require the course be completed within one year of registration; and
• refrain from all advertising during the course of study.

CE course submissions subject to minimum DRE requirements for approval

DRE Regulations §3007
Effective: January 1, 2011

An educator’s application for DRE approval of a CE course must be made on the “C.E. Offering Approval Application” (DRE Form RE 315) and include:

• for corporations:
  • a current Certificate of Status as a Domestic Corporation, executed by the California Secretary of State in the preceding 30 days; or
  • a current Certificate of Qualification or Certificate of Good Standing as a Foreign Corporation, executed by the California Secretary of State in the preceding 30 days.
• for companies or partnerships:
  • a Certificate of Qualification;
  • a Certificate of Registration; or
  • a Certificate of Good Standing.
• for those operating under a DBA:
  • a Fictitious Business Name Statement filed with the county recorder in their local county (or in Sacramento if the provider’s base of operations is outside of California).
• CE Instructor Certification for all live course instructors;
• a copyright authorization from the copyright holder, stating that the CE course materials may be used by the applicant;
• if the provider is not a California resident, a consent to Service of Process form (DRE Form RE 304);
• copies of all instructional materials, including books, cds, dvds, etc.;
• if CDs will be used:
  • the CDs;
  • a table of contents for each CD; and
  • if the CD contains a textbook, a copy of the text cover, publication page and table of contents of the textbook.
• if DVDs are used in the course, a course outline must be included, subdivided to clarify the amount of time for each topic on every DVD;
• a general information page given to all students prior to enrolling in the course. This page must include all requirements and policies affecting enrollment in and completion of the course;
• for live lectures:
  • a “C.E. Instructor Certification” (DRE Form RE 335); and
  • a course outline detailing topics covered, and the amount of time allocated to each subject;
• detailed statements of the following:
  • methods used to regulate online exams;
  • control and timing of student participation in “online-only” course materials;
  • copies of all quizzes, and a statement of how feedback on these quizzes will be provided to students;
  • a copy of the form to be signed by students, confirming that the student is the one taking the final exam;
  • instructions for paper final exams provided to students and their exam monitors; and
  • for paper exams, the form to be signed by the exam monitor affirming that the test procedures complied with DRE regulations.
• the final exam and answer key. If students are permitted to test more than once, two final exams must be submitted, or a sufficient number of questions must be included in a question bank to constitute two separate exams;
• a sample certificate of completion, which includes:
  • the name and license number of the student;
  • a statement that the student has attended a live course, or completed all exams satisfactorily;
  • the name of the course;
  • the number of credit hours;
  • the registration date;
  • the completion date;
  • the category of the course;
  • the course’s eight-digit DRE approval number;
  • the course provider’s name, address and telephone number; and
  • the printed name, signature and phone number of the individual who confirms the student’s course completion.
• for live courses offered in a maximum of two locations no more than twice a year, covering new or changing subjects in real estate, a cover letter must accompany the course. This letter must identify the course as a one-time offering, and include the first date the course will be offered.

Procedure for changing content in approved CE courses

DRE Regulations §3007.2
Effective: January 1, 2011

For a CE course provider to make changes to any course already DRE approved, they must submit the changes to the DRE for approval before implementing them. This does not apply if the changes are exclusively designed to reflect recent changes in law.

Providers of CE courses approved prior to January 1, 2011 must make changes to meet the requirements of this section. Such changes do not need to be submitted to the DRE for review until the course is renewed.

Regulations for final exams

DRE Regulations §3007.3
Effective: January 1, 2011

All CE courses must include a final exam which determines whether the student enrolled has successfully completed his course. Student access to exams will be limited to prevent cheating or improper distribution of the exam.

For packaged CE courses containing 15 to 45 hours, students may not be given access to more than fifteen credit hours-worth of examination within any 24-hour period. Access to sequential fifteen-hour exams may not be granted until the preceding 24-hour period has passed. This does not require successful completion of one exam stage before proceeding to the next, so long as the student is not permitted to complete more than 15 hours of final examination in any 24-hour period.

In a multiple choice, true/false, or fill-in the blank exam, the minimum number of questions is:

• 5 questions for 1 credit hour;
• 10 questions for 2 credit hours;
• 15 questions for 3-5 credit hours;
• 20 questions for 6-8 credit hours;
• 25 questions for 9-11 credit hours;
• 30 questions for 12-14 credit hours;
• 40 questions for 15-18 credit hours;
• 50 questions for 19-23 credit hours;
• 60 questions for 24-27 credit hours;
• 70 questions for 28-31 credit hours;
• 80 questions for 32-35 credit hours;
• 90 questions for 36-39 credit hours; and
  
• 100 questions for 40 credit hours and over.
  

All multiple choice, true/false, or fill-in the blank exams are limited to a maximum of 10% true/false questions.

The time limit for completing an exam may allow no more than one minute per question (thus a 15-question test for a three hour course may have a maximum time limit of fifteen minutes).

Final exams may be open or closed-book exams, but must be the same for all students. In an open book exam, only materials approved for use in the student’s specific course may be used.

Final exams taken on paper to complete a correspondence course may only be administered by a proctor, designated by the course provider, who is not related to the student by blood, marriage, domestic partnership or any other relationship which might influence the proctor to improperly administer the exam. The proctor must certify in writing that he has complied with all rules of exam administration.

Final exams administered online may not be printed by the student, accessed multiple times or be available after the time-limit has passed.

Before a student may access the final exams for a correspondence course, the student must be enrolled for a maximum of one day for every eight credit hours of the total course hours which make up the CE package in which the student is enrolled. For an “online-only” CE course, the student must spend the full amount of credit hours on the internet reviewing course materials and taking quizzes before accessing the final exam (a 45 hour course will require the student to spend a full 45 hours studying and taking quizzes; the course provider’s online system must monitor the progress of this). For those who elect to take courses on paper, the eight credit-hour days may begin whenever the student has access to the course material.

Students may retake the final exam a second time if they fail on their first attempt. Questions on the second exam must be different from those on the first exam. Students may not take the final exam more than two times. If a student fails both exams, they must re-enroll in the course and complete the full number of credit hours again before testing.

No more than 10% of the questions on the final exam may be used in quizzes and other tests for the same course.

Students are not permitted to possess the final exam except in controlled testing situations.

DRE sponsor number to be included in all advertising

DRE Regulations §3007.6
Effective: January 1, 2011

All advertising for CE must contain the course provider’s four digit DRE Sponsor Number. The full eight digit number, used by the DRE to approve completed courses, must be excluded from all advertisements.

Non-CE course approval and certification for CE instructors

DRE Regulations §3011.1
Effective: January 1, 2011

Course instructors who present a live real estate-related course which is not approved by the DRE may apply to the DRE for CE credit. This application must include a copy of the course’s table of contents, if applicable, and an outline for the course.

The course provider of any DRE-approved CE course presented live may issue one certificate of completion to the course instructor during the period of approval for instructing a DRE-approved course.

Application for CE credit for authorship of a non-approved textbook

DRE Regulations §3011.2
Effective: January 1, 2011

If a writer seeks CE credit for writing a book that has not been approved for use as CE material, the writer must submit an application for credit to the DRE which includes:

• the book/article’s publication date;
• an explanation of how the material fits the DRE’s standards for course materials;
• the number of hours the course provider devoted to writing the book/article; and
• the time period during which the book/article was written.

Application for CE credit for non-approved courses

DRE Regulations §3011.4
Effective: January 1, 2011

If a student applies to the DRE to receive CE credit for a course that has not been approved by the DRE, the student must submit an application that includes the final grade received in the course and a certificate of completion.

Records to be kept by CE providers

DRE Regulations §3012.2
Effective: January 1, 2011

Course providers must keep records of every student who registers/attends their courses, and grades received on final exams. These records must be kept for at least five years, and must be extensive enough for the provider to grant a duplicate certificate of completion to students upon request.

Related topics:

Posted by Giang Hoang-Burdette | Jan 14, 2010 | Pending Laws, Real Estate | 0

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

Legislative Gossip Years:  2009 / 2010 / 2011 / 2012 / 2013

Last Updated: December 23, 2010

Here’s a list of the 2010 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 two weeks.

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.

Common interest developments (CIDs)
AB 1793	ENROLLED 08/20/10	This bill would make unenforceable any provision in a CID’s CC&Rs that prohibits the use of artificial turf or synthetic grass.
AB 1927	ENROLLED 08/19/10	This bill would require, after January 1, 2011, any prohibition of a rental or lease of separate interest in a CID contained in that CID’s governing document initially recorded on or after January 2, 2011 be approved by at least 2/3 of all the owners of separate interests in the CID.
AB 2016	PASSED 08/13/10	This bill would clarify that a CID requesting notification that a notice of default (NOD) has been filed on any individual interests in the CID does not constitute a request for a document that transfers or encumbers that separate interest.
Department of Real Estate and Licensing
DRE Reg “Appraisal Influence”	INTRO 08/13/10	This proposed regulation would add the existing list of activities which constitute improper appraisal influence into the DRE Regulations, and adds additional activities which are considered improper appraisal influence to the existing, non-exclusive activities.
DRE Reg “Broker Supervision”	INTRO 08/13/10	This proposed regulation would  clarify a broker’s duty to have direct supervision over the activities of his agents. It specifies how and to whom delegation of a broker’s supervisory activities may be made. Editor’s note — individuals prohibited from participating in real estate activities are now ‘debarred’. Does this lift the real estate industry to that of the legal industry…?
DRE Reg “Good Standing”	INTRO 08/13/10	This proposed regulation would redefine a license in “good standing” as one which has never been suspended, revoked or restricted as a result of disciplinary action. Licenses which expire but are renewed within the statutory grace period would still be considered in “good standing”.
DRE Reg “Trust Funds”	INTRO 08/13/10	This proposed regulation would clarify trust fund activities which violate the fiduciary duties a broker owes to a client.
SB 1137	PASSED 09/24/10	This bill would make it a crime for any person to act as a mortgage loan originator without the required endorsement.  It would also prohibit a real estate broker from compensating an un-endorsed person for mortgage origination activities which require an endorsement.  This bill would give the DRE commissioner the ability to suspend, revoke or deny a license based on a violation of endorsement law.
AB 2257	AMENDED 04/06/10	This bill would transfer authority over real estate appraisers to the Department of Real Estate (DRE), and transfer from the DRE to the Division of Corporations (DOC) regulation of residential real estate financial services. If passed, this bill would go into effect July 1, 2012.
Disclosures
SB 183	PASSED 05/07/10	This bill would change the Transfer Disclosure Statement (TDS) to include a seller certification that the smoke detector and water heather be in compliance with state laws by the end of escrow, and add a disclosure regarding carbon monoxide devices.
Fair housing
AB 1680	ENROLLED 08/25/10	This bill would require enforcement of a waiver of an individual’s civil rights to be contingent on proof that the waiver was made knowingly and voluntarily and not as a condition of a contract.
Energy
AB 1705	AMENDED 03/11/10	This bill would exclude from gross income any grant received under the American Recovery and Reinvestment Act for the installation of alternative energy properties as specified (e.g., solar panels).
AB 2014	AMENDED 05/18/10	This bill would, from the taxable year beginning January 1, 2010 and ending January 1, 2014, provide a tax credit for houses that are brought into compliance with certain energy efficiency standards.
Fees
AB 1762	PASSED 07/15/10	This bill would redefine the term “advance fee” to mean a fee regardless of form that is claimed for services requiring a license. The exceptions to this definition now include money claimed for advertising the sale, lease, investment in or exchange of real property, or money earned under stand-alone real estate services.
SB 858	PASSED 10/15/10	This bill would clarify the method of calculating the annual fees due to the Franchise Tax Board (FTB) by an LLC with income both in California and in other states or countries.
Home inspections
AB 1809	PASSED 09/29/10	This bill would authorize a home inspection to include a Home Energy Rating Systems energy audit at the request of the consumer requesting the inspection.
Insurance
AB 2291	INTRO 02/18/10	This bill would require a lender collecting insurance proceeds for repairing or rebuilding a damaged one-to-four unit residential property pay at least 2% interest on the amount the lender receives in advance.
Landlords and tenants
AB 505	AMENDED 01/04/10	This bill would prohibit a registered sex offender from living in a multi-family housing unit, motel or hotel in which there resides another registered sex offender, unless they are related by blood, marriage or domestic partnership.
AB 1800	PASSED 09/30/10	This bill would increase the penalties for the wrongful claim of ownership of residential property for the purposes of renting the property to another party without the owner’s consent.
SB 1149	PASSED 09/30/10	This bill would require, until January 1, 2013, a notice to quit given to a tenant within one year of the foreclosure sale of the property be accompanied by a separate notice setting forth the tenant’s rights.
Mortgages: general, defaults, foreclosures and loan modifications
AB 1639	AMENDED 05/28/10	This bill would establish a Facilitated Mediated Mortgage Workout (MMW) program to enable defaulting borrowers to mediate loan modification with lenders. This program is subject to federal funding and, if effected, only last until January 1, 2014.
AB 2024	AMENDED 03/24/10	This bill would require any lender who rejects a loan modification request to send within seven days a notification to the requesting borrower stating the reason for the rejection.
AB 2236	INTRO 02/18/10	This bill would require a lender sending a borrower a notice that the borrower has failed to make the required minimum mortgage payment to include the contact information of the entity who has the authority to approve a loan modification for that borrower.
AB 2189	AMENDED04/06/10	This bill would require any loan modification agreement be translated into Spanish, Chinese, Tagalog, Vietnamese or Korean if it was primarily negotiated in that respective language.
AB 2325	PASSED 09/30/10	This bill would require foreclosure consultants to provide an audit of obligations secured by liens on a residence in foreclosure, and to register with the Department of Justice to perform such audits.
AB 2653	AMENDED 04/08/10	This bill would allow borrowers to know the price paid for sale of their mortgage, and would apply to any properties purchased on or after January 1, 2005.
AB 2678	AMENDED 03/23/10	This bill would require that if a trustee’s sale is postponed, a new notice of trustee’s sale must be sent out to the borrower before the trustee’s sale can take place.
SB 931	PASSED 09/30/10	This bill would provide antideficiency protection for first trust deeds on short sales of “the dwelling”, regardless of recourse or nonrecourse status. Editor’s note — This bill needs to clarify the meaning of the word “dwelling.”
SB 1000	AMENDED 04/27/10	This bill would allow a borrower to request a lender to transfer a residential property appraisal prepared for the borrower in conjunction with a loan application to a different lender.
SB 1221	PASSED 08/23/10	This bill would allow a mortgage trustee to file a notice of sale up to five days prior to the lapse of the 3-month period has passed, provided the date of the sale is no earlier than three months and 20 days after the filing of the notice of default.
SB 1275*, SBX8 38, SBX 8 39	AMENDED 08/16/10*	This bill would require, until January 1, 2013, any entity filing an NOD to provide the defaulting borrower with an application for a loan modification and other foreclosure-avoidance options. Additionally, this bill would delete the current foreclosure-avoidance declaration from the NOD and make it a separate, recordable form attesting to full compliance with NOD disclosures.
SB 1427	PASSED 09/29/10	This bill would require specified government entities to notify the owner of a property of the failure to maintain a property and provide a chance for the owner to remedy the failure before issuing fines for failing to maintain property.
Taxation: general, tax credits, discharge of indebtedness
SB 1316	AMENDED 08/17/10	This bill would tax any like-kind property exchanges where the property replacing a California property is located out of state. If enacted, this bill would go into effect for all exchanges occurring on or after January 1, 2011 and before January 1, 2012.
AB 1779, ABX6 7, SB 97, SB 401*,SBX6 14, SBX8 25, SBX8 32	PASSED 4/12/2010*	This bill would extend the favorable tax reporting on discharge of indebtedness in relation to mortgage debt forgiveness through January 1, 2013. This bill would make other changes to conform other state laws to existing federal laws.
AB 1806	AMENDED 03/25/10	This bill would allow a surviving spouse to exclude a full $500,000 of taxable profit from the gain on the sale of a principal residence, provided the deceased spouse was eligible for his/her exclusion at the time of death, and the sale takes place no later than two years from the date of the death.
AB 2038	AMENDED 04/27/10	This bill would, beginning January 1, 2012 and through January 1, 2016, allow the DRE to suspend, revoke or deny a license to an individual for failure to pay income taxes.
AB 2126	AMENDED 05/18/10	This bill would, on or after January 1, 2011, reduce the minimum franchise tax due for the first ten years of the existence of any corporations, limited liability companies (LLCs) or limited liability partnership (LLPs), provided the entity first commenced business on or after January 1, 2011 and before January 1, 2016.
AB 2458	ENROLLED 08/30/10	This bill would, on or after January 1, 2011, require limited liability companies (LLCs) that underpay their annual fees to pay the necessary penalties within 60 days of the notification of the underpayment.
AB 2492	AMENDED 05/18/10	This bill would require a property value reassessment be completed on any property owned by a corporation, partnership or LLC when 100% of the ownership of the corporation, partnership or LLC is sold or transferred in a single transaction,. This bill would further require the newly controlling entity to file a change of ownership form with the SBOE, and increase the penalty for failing to file such a form from 10% to 20% of the applicable taxes.
AB 2735	INTRO 02/19/10	This bill would, until January 1, 2021, except the transfer of real property from a deceased cotenant to another cotenant does not constitute a change of ownership for property taxation purposes.
AB 183*, ABX6 5, ABX8 34, SBX6 4, SBX8 21	PASSED 03/25/2010*	This bill would create a tax credit of the lesser of $10,000 or 5% of the purchase price of a new property (or an existing property, provided the buyer is a first-time homebuyer) in California made between May 1, 2010 and December 31, 2010. This bill is part of the governor’s California Jobs Initiative. More information can be found on Governor Schwarzenegger’s website.
SB 913, SBX6 3	INTRO 02/08/10	This bill would extend the existing $10,000 or 5% of the purchase price tax credit for the purchase of a new or existing primary residence up to an aggregate credit of $100,000,000, from the date of passage to July 1, 2010. Additionally, once that tax credit has been depleted, this bill would create a new tax credit of $10,000 or 5% of the purchase price of purchase of a new primary residence up to an aggregate credit of $200,000,000, from the date of the first credit’s expiration to January 1, 2011. This bill is part of the governor’s California Jobs Initiative. More information can be found on Governor Schwarzenegger’s website.
SB 1244	PASSED 09/29/10	This bill would require an LLC filing taxes as an “S” corporation to make withholdings on compensation paid to any member of the LLC who files a federal income tax return. This bill would not apply to LLCs filing taxes as partnerships.
SB 1415, SCA 31	INTRO 05/03/10	This bill would, on and after January 1, 2011, allow an individual who is over the age of 65 to transfer their base year value in a property to a replacement dwelling in another county without requiring a county ordinance providing for the transfer.
SB 1416	INTRO 02/19/10	This bill would, on and after taxable years beginning January 1, 2010, allow an individual who is over the age of 65 to sell his principal residence without including any profit on the sale in his gross income.
SBX6 10	AMENDED 05/05/10	This bill would, on and after taxable years beginning January 1, 2013 and before January 1, 2016, only 50% of any net capital gains for capital assets purchased on or after January 1, 2013 will be taxed.
Title
AB 1684	PASSED 07/09/10	This bill would require a person claiming title through adverse possession to provide records certified by the county tax collector to prove payment of property taxes.
Title and escrow companies
AB 1720	AMENDED 06/03/10	This bill would require the seller provide the buyer with a disclosure of the Buyer’s Choice Act, which prohibits a seller from requiring a buyer to use the services of any particular title or escrow company. It would also extend the Buyer’s Choice Act to short sales.

Related topics:

Posted by ft Editorial Staff | Mar 1, 2010 | New Laws, Real Estate | 0

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

For a total list of all the real estate laws digested by first tuesday for the 2009-2010 legislative session, click here.

Topics:

1. Changes to property assessment protocol

Reported by Anthony Renaud

Assessors must accept alternative forms of documentation from home owners

 

Revenue and Taxation Code §§ 72, 441.5
Amended by S.B. 822
Effective: January 1, 2010

Each county’s assessor may require floor plans to be submitted in electronic format.

In lieu of completing a standard printed property statement, the county assessor may accept the property statement in any of the following formats:

• as an electronic attachment to the standard property statement;
• as an electronically-filed property statement;
• as a property statement in print that is substantially similar to and provides the same information as the standard printed property form, signed by the taxpayer; or
• any combination of the above methods.

 

Assessor must share disabled veteran property tax exemption info with Franchise Tax Board

 

Revenue and Taxation Code §§ 205.6
Amended by S.B. 822
Effective: January 1, 2010

County assessors may share with the Franchise Tax Board (FTB) information about taxpayers receiving disabled veteran property tax exemptions.

The FTB may demand from the county assessor information about disabled veterans, including:

• the name of the veteran and spouse;
• social security number; and
• the address of the home to which the tax exemption is applied.

 

 

 

 

 

Counties may exempt low-value property from property taxes

 

Revenue and Taxation Code §§ 155.20, 2823
Amended by S.B. 822
Effective: Jan 1, 2010

A county board of supervisors may exempt from property taxes any property with a total base year value or full value of $10,000 or less, up from a previous ceiling of $5,000.

Related topics:

Posted by ft Editorial Staff | May 20, 2010 | New Laws, Real Estate | 0

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

For a total list of all the real estate laws digested by first tuesday for the 2009-2010 legislative session, click here.

Topics:

1. Discharge of taxation on indebtedness
2. Married couple exclusion of gain still available after spouse’s death

Reported by Alex Gomory

The rules reported here outline the new revisions pertaining to the taxation of principal reductions.

 

Discharge of taxation on indebtedness (principal reductions)

Revenue and Taxation Code §17144.5
Amended by S.B. 401
Effective: Immediately

This law extends the tax exemption for discharge of qualified principal residence indebtedness income to debt forgiven on or after January 1, 2009 through January 1, 2013. No penalties will apply to discharge of indebtedness owed in 2009 for the principal reduction on his 2009 tax return.

Discharge of indebtedness income received before January 1, 2013 will not be taxed on a reduction of up to $500,000 ($250,000 if a married individual files a separate return).

If a debt forgiven exceeds $500,000, the amount over $500,000 is taxable.

The rules reported here reveal the amount protected from taxation when a homeowner sells a property after a spouse’s death.

 

Married couple exclusion of gain still available after spouse’s death

Revenue and Taxation Code §17152
Amended by S.B. 401
Effective: Immediately

A homeowner may claim the full $500,000 married couple exclusion of gain realized on the sale or qualified exchange of a property within two years of a spouse’s death provided the deceased spouse was eligible for the exclusion prior to his death.

Related topics:
principal reduction,

Posted by ft Editorial Staff | Oct 18, 2010 | New Laws, Real Estate | 0

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

For a total list of all the real estate laws digested by first tuesday for the 2009-2010 legislative session, click here.

Topics:

1. Home inspectors may perform HERS home energy audits
2. Revisions to city and county low-income multifamily rental housing construction requirements
3. Fines for failure to maintain vacant property subject to an NOD
4. Dodd-Frank establishment and purpose of the Office of Housing Counseling
5. Anti-deficiency bars first trust deed recovery on short sales of one to four residential units
6. Increased fines/imprisonment for adverse possessors who rent out residential units
7. Additions to the services rendered by a foreclosure consultant

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Home inspectors may perform HERS home energy audits

Reported by Heather McCartney

The rules reported here authorize home inspectors to perform HERS home energy audits.

Business and Professions Code §7199.5, §7199.7
Added by A.B. 1809
Effective: January 1, 2011

If requested, a home inspector may perform a Home Energy Rating System (HERS) California home energy audit. The home energy audit must meet the requirements of the HERS regulations established by the California Energy Commission.

Editor’s note— For more information regarding HERS home energy audits, see the August 2010 first tuesday article, Energy efficiency: Not just for hippies.

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Revisions to city and county low-income multifamily rental housing construction requirements

Reported by Kelli Galippo

These revisions set forth new qualifications a city or county must meet in order to substitute 25% of new multi-family rental units they are obligated to build for low- and very low-income households during each planning period with the rehabilitation of pre-existing multi-family rental units.

Government Code §65583.1
Amended by A.B. 1867
Effective: January 1, 2011

A city or county must build a certain number of multi-family rental units for low- and very low-income households during each planning period. They have the option to substitute 25% of the units they must build with the rehabilitation of pre-existing units.

Units acquired for rehabilitation must be located in a multifamily rental or ownership housing complex of three (not four) or more units, and must be made available to rent or own at prices suitable for low- or very low-income households.

If a city or county substitutes rehabilitated multi-family units available for low- or very low-income households for a portion of the housing they are required to build in one planning period, at least an equal number of new multi-family units suitable for low- or very low-income households must be constructed within the same planning period.

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Fines for failure to maintain vacant property subject to an NOD

Reported by Heather McCartney

The rules reported here set the requirements for the notice to be given by local agencies to a property owner prior to fining the owner for failing to maintain an unoccupied property during foreclosure or after acquiring ownership at a foreclosure sale.

Code of Civil Procedure §2929.4
Added by: S.B. 1427
Effective: January 1, 2011

A government agency policing the failure of a residential property owner to maintain unoccupied property, which is in foreclosure or has been acquired by foreclosure, must give a notice of the violations and an opportunity for the owner to correct the violations before imposing a fine. If the owner of the unoccupied property does not correct the violation, the agency may impose the fine of $1,000 a day, per violation.

Code of Civil Procedure §2929.45
Added by: S.B. 1427
Effective: January 1, 2013

An assessment lien a government agency imposes against a property to recover costs for curing the nuisance created by the property owner’s failure to maintain an unoccupied property, which is in foreclosure or has been acquired by foreclosure, cannot exceed the actual and reasonable costs of the nuisance abatement.

A government agency cannot impose such an assessment lien unless the costs of such abatement have been adopted by the elected officials of a government agency at a public hearing.

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Establishment and purpose of the Office of Housing Counseling

Reported by Kelli Galippo

The rules reported here are amendments and additions to the Truth in Lending Act (TILA) made by the Dodd-Frank Wall Street Reform and Borrower Protection Act.

Unless otherwise specified, these amendments became effective July 21, 2010. The Bureau of Consumer Financial Protection (BCFP) will finalize regulations implementing these amendments or additions to provide TILA’s Regulation Z protection, which are effective when issued.

The real estate loans controlled here are Real Estate Settlement and Procedures Act (RESPA) loans (consumer-purpose loans secured by a one-to-four unit residential property, owner-or non-owner-occupied) made or arranged by mortgage loan brokers, and are also now classified by TILA as either “qualified mortgages” or “non-qualified mortgages” (Section 32 high-cost loans), since RESPA loans must meet new TILA disclosure standards.

Director of Housing Counseling responsibilities
42 U.S.C. §3533
Added by H.R. 4173

The Department of Housing and Urban Development (HUD) has established the Office of Housing Counseling (OHC), lead by the Director of Housing Counseling who is appointed by the HUD Secretary.

The OHC is responsible for:

• research, grant administration, public outreach and policy development related to housing counseling; and
• establishment and administration of regulations set by HUD related to:

o housing counseling;

o homeownership counseling;

o mortgage-related counseling; and

o rental housing counseling.

The OHC will establish rules for:

• counseling procedures under the HUD Act of 1968;
• providing the public with a toll-free telephone number;
• distributing home buying information booklets;
• certifying agencies who provide housing counseling;
• carrying out the housing assistance program;
• regulating abusive and deceptive lending related to residential mortgage loans;
• the operation of an advisory committee;
• collaborating with community organizations specializing in housing counseling; and
• providing additional counseling services to areas which are lacking.

The OHC will also have an advisory committee of 12 individuals from the mortgage and real estate industry to help the Director execute his responsibilities.

Each member of the advisory committee will serve a three-year term, and can be re-appointed by the HUD Secretary. Four of the initial members will be appointed for a one-year term, and four will be appointed for a two-year term.

The advisory committee will serve without pay, but will receive travel expenses. They will not have any role in determining housing counseling grants.

The OHC must provide counseling which addresses:

• purchasing a home;
• selecting a home;
• issues regarding homeownership and home purchasing; and
• selling a home.

Housing counseling procedures
12 U.S.C. §1701x
Added by H.R. 4173

Counseling procedures will be established by the Housing and Urban Development (HUD) Secretary, including the materials and forms used by housing counseling services.

Homeownership counseling is defined as counseling related to homeownership and residential mortgage loans.

Rental housing counseling is defined as counseling related to the rental of residential property, including future homeownership counseling.

The HUD Secretary will approve mortgage evaluation software that takes into account:

• the borrower’s financial situation;
• the cost of maintaining a home, including insurance, taxes and utilities;
• how long the borrower expects to remain in the home;
• the expected time to maturity of the loan; and
• any other factor the Secretary considers appropriate.

Mortgage evaluation software cannot replace housing counseling, but only be used as a supplement.

Mortgage evaluation software will be made available to the public, but only to the extent the availability complies with the department budget.

The Office of Housing Counseling (OHC) is responsible for developing national public service multimedia campaigns to advertise the availability of housing counseling services through HUD. Each advertisement must display HUD’s toll-free telephone number and website information.

10% of funds used to advertise housing counseling must be used to conduct an education program in areas with a high volume of foreclosures. Direct mailing will be sent out to households about:

• how to avoid foreclosure rescue scams;
• how to avoid predatory lending mortgage agreements;
• how to avoid for-profit foreclosure counseling; and
• local counseling resources approved by HUD.

The education program will emphasize service to retirement communities and low-income minority communities.

An area with a high density of foreclosures is defined as a metropolitan statistical area with one of the highest national home foreclosure rates.

An area with a high percentage of retirement communities is defined as a metropolitan statistical area with one of the highest national percentages of residents who are 65 or older.

An area with a high percentage of low-income minority communities is defined as an area with a higher-than-average percentage of residents who are minorities and low-income.

HUD will advise and assist states and local government in the establishment of educational programs to inform households about the availability of housing for:

• home mortgages;
• mortgage refinancing;
• home equity loans;
• home repair loans; and
• flood or other disaster insurance coverage.

Notification of the availability of homeownership counseling includes notification of the availability of mortgage software systems.

Homeownership and rental counseling assistance is available for state and local counseling agencies approved by HUD. It will be adequately distributed to encourage efficient and successful programs in all areas, but specifically to rural areas with traditionally limited access to counseling services and internet.

Financial assistance will not be given to any organization which:

• has violated a federal law relating to an election for federal office; or
• employs individuals who have violated federal law relating to an election for federal office.

Housing counseling agencies and organizations will not receive financial assistance from HUD unless they have been approved by the department.

The HUD Secretary will take actions to ensure individuals and organizations who provide housing counseling know the requirements for approval under HUD.

The HUD Secretary will conduct a study about the causes of default and foreclosure, the role of escrow accounts in helping prime and nonprime borrowers avoid default and foreclosure, and the role of computer registries of mortgages. The report will also include recommendations for legislation and how to best identify populations with the highest need for counseling.

A preliminary report will be submitted to Congress no later than July 21, 2011. A final report will be submitted to Congress no later than July 21, 2012.

HUD, with the Bureau of Consumer Financial Protection (BCFP), will create a database of information on foreclosures and mortgage defaults for one-to-four unit residential properties which will be available to the public.

Information in the database will be collected on a census tract, and include:

• the number and percentage of mortgage loans delinquent by over 30 days;
• the number and percentage of mortgage loans delinquent by over 90 days;
• the number and percentage of real estate owned (REO) properties;
• the number and percentage of mortgage loans in foreclosure;
• the number and percentage of mortgage loans with outstanding principal greater than the value of the property; and
• any other relevant information determined by HUD and the BCFP.

Nothing in the database may be used to encourage discriminatory allocation of credit or lending.

The database will:

• protect the confidentiality of individuals and their personal information;
• maintain standards of data integrity and security; and
• collect and make available information in the database without compromising the confidentiality of individuals and their personal information.

Non-profit organization is defined as a private or public organization which:

• is organized under state or local laws;
• has no part of its net earnings used for the benefit of any member or contributor; and
• complies with financial accountability standards.

Providing information to borrowers about settlement services
12 U.S.C. §2604
Added by H.R. 4173

The Bureau of Consumer Financial Protection (BCFP) will prepare a booklet, at least once every five years, to help individuals applying for a Real Estate Settlement Procedures (RESPA) loan understand the costs of real estate settlement services. The booklet will be available in multiple languages, and will be distributed to all lenders who make RESPA loans. It will also be distributed to homeownership counselors certified by the Department of Housing and Urban Development (HUD).

The booklet will include:

• a description of the nature and purpose of real estate settlement costs for a federally-related mortgage loan, including descriptions of:

o   balloon payments;

o   prepayment penalties;

o   the advantages of prepayment; and

o   the trade-off between closing costs and the interest rate over the life of the loan;

• a sample of a settlement statement;
• an explanation of lending practices, including those prohibited by the Truth in Lending Act (TILA);
• a list of questions a borrower of a federally-related mortgage loan should ask regarding the loan;
• an explanation of the right of rescission regarding certain transactions;
• an explanation of an adjustable-rate mortgage (ARM) and a reference to the book titled, “Consumer Handbook on Adjustable Rate Mortgages,” published by the Director of Housing Counseling;
• an explanation of a home equity line of credit and a reference to the pamphlet required to be provided under TILA;
• information about homeownership counseling services and a recommendation that the borrower use them;
• an explanation of escrow accounts;
• an explanation of the borrower’s right to choose the professionals who provide services pertaining to real estate settlement;
• an explanation of the borrower’s responsibilities, liabilities and obligations in a mortgage transaction;
• an explanation of real estate appraisals, including the difference between an appraisal and home inspection; and
• notice that HUD has made available a brochure about loan fraud, a website address and toll-free telephone number for where to obtain the brochure.

The booklet will take into consideration California mortgage procedures.

HUD will inform potential homebuyers of the importance of an independent home inspection by:

• publishing form HUD 92564-CN, titled “For Your Protection: Get A Home Inspection” in both English and Spanish;
• publishing a HUD/FHA booklet, titled “For Your Protection: Get A Home Inspection” in both English and Spanish;
• publishing a HUD booklet, titled “For Your Protection: Get A Home Inspection” that does not reference FHA-insured homes, in both English and Spanish; and
• publish a document, titled “Ten Important Questions to Ask Your Home Inspector” in both English and Spanish.

The materials will be available electronically, through home counseling organizations, or by calling the toll-free telephone number for HUD.

Training for HUD-approved housing counseling agencies will include:

• the importance of getting an independent home inspection;
• reasons for specific inspections such as radon and lead-based paint testing;
• how to locate and select a qualified home inspector; and
• a review of home inspection materials from HUD.

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Anti-deficiency bars first trust deed recovery on short sales of one to four residential units

Reported by Heather McCartney

The rules reported here describe the protection a homeowner who sells his property in a short sale has against a lender’s deficiency judgment.

Code of Civil Procedure §580e
Added by: S.B. 931
Effective: January 1, 2011

When a homeowner sells a one-to-four unit residential property encumbered by a first trust deed in an amount exceeding the net proceeds from the sale and the lender accepts the sales proceeds in exchange for reconveyance of their trust deed, commonly called a short sale, the difference (discount) is discharged and the lender barred from collecting any deficiency.

However, this anti-deficiency protection does not protect a homeowner from liability for his fraud in the sale or waste to the property securing the first trust deed.

Editor’s note — While this increased anti-deficiency protection may seem like a victory for the underwater homeowner, it does not provide anti-deficiency protection for home equity loans when the first forecloses and wipes out the second trust deed — the primary source of deficiency judgments in California.

The legislature did not define dwelling as limited to only owner-occupied single-family residences, as they did in Code of Civil Procedure §580b for purchase-assist loans to acquire a primary residence the borrower will occupy. Hence, this anti-deficiency legislation applies to all one to four residential units, owner occupied or a rental, barring recovery of any deficiency in the value of the property to fully justify the loan on the discount pay off, whether the loan is a purchase-assist loan or a refinance.

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Increased fines/imprisonment for adverse possessors who rent out residential units

Reported by Heather McCartney

The rules reported here increase the penalty for individuals who claim ownership or take possession to an owner’s property without consent for the purpose of renting the property to a tenant, commonly called adverse possession.

Penal Code §602.9
Amended by: AB 1800
Effective: January 1, 2011

An individual is guilty of a misdemeanor if he claims ownership or takes possession of a residential property with the intent of renting it to a tenant, without the owner’s permission. Previously punishable by a fine of up to $1,000 and/or up to six months in county jail, the current punishment has been increased to a fine of up to $2,500, one-year imprisonment in the county jail or both. Each violation is punishable separately.

This law does not preclude an adverse possessor from being prosecuted on grand theft, fraud charges or other applicable provisions of law.

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Additions to the services rendered by a foreclosure consultant

Reported by Kelli Galippo

This amendment expands the list of services rendered by a foreclosure consultant.

Civil Code §2945.1
Amended by A.B. 2325
Effective: January 1, 2011

The definition of a service offered or provided which classifies one as a foreclosure consultant now includes arranging or attempting to arrange an audit of a mortgage secured by a residence in foreclosure, unless the person arranging or attempting to arrange the audit is the property owner’s attorney.

Related topics:
foreclosure, home inspection, low-income housing, mortgage, vacancy rate

Posted by ft Editorial Staff | Oct 1, 2010 | New Laws, Real Estate | 0

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

For a total list of all the real estate laws digested by first tuesday for the 2009-2010 legislative session, click here.

Topics:

1. New requirements for service of three-day notices to quit on non-residential tenants
2. Dodd-Frank changes to the Truth-in-Lending Act (TILA)
3. Dodd-Frank changes to Section 32 consumer loans: TILA increases disclosures and tightens parameters
4. NOTS may be filed five days before lapse of NOD period
5. Real estate licensees must hold MLO license endorsement to perform mortgage services
6. An HOA may request copies of a notice of default, a notice of sale and a trustee’s deed

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New requirements for service of three-day notices to quit on non-residential tenants

 

Reported by Alex Gomory

The rules here modify the methods of service for three-day notices to quit on non-residential tenants.

California Civil Procedure §1162
Added by A.B. 1263
Effective: August 17, 2010

A non-residential tenant may be served a three-day notice in the following ways, and must be attempted in the order as listed:

• personal service of the notice on the non-residential tenant;

• if at the time of service the non-residential tenant is absent from the leased premises, a copy of the notice may be left with any person present at the property who is of suitable age and discretion in addition to sending a copy of the notice through the mail addressed to the tenant at the address of the premises; or

• if at the time of service the non-residential tenant is absent from the leased premises, and a person of suitable age and discretion is not present, a copy of the notice may be affixed in a conspicuous location on the property in addition to sending a copy of the notice through the mail addressed to the tenant at the address of the premises.

A non-residential tenant is any person or entity who pays an agreed-upon rental amount for the use of a property which is not a mobile home, and who does not use property as a dwelling unit.

Editor’s Note — These rules are not mandatory and the nonresidential landlord and tenant may agree to any method, place or time for service when entering into a lease agreement. [Culver Center Partners East #1, L.P. v Baja Fresh Westlake Village, Inc (2010) 185 CA2nd 744]

first tuesday Form 580: Proof of Service of Notices can be used on a tenant to establish service in an unlawful detainer action.

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TILA circa 2010; consumer protection enhancement

 

Reported by Kelli Galippo and Jeffery Marino

The rules reported here are amendments and additions to the Truth in Lending Act (TILA) made by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Unless otherwise specified, these amendments became effective July 21, 2010. The Bureau of Consumer Financial Protection (BCFP) will finalize regulations implementing these amendments or additions to provide TILA’s Regulation Z protection which are effective when issued.

The real estate loans controlled here are Real Estate Settlement and Procedures Act (RESPA) loans (consumer-purpose loans secured by a one-to-four unit residential property, owner-or non-owner-occupied) made or arranged by mortgage loan brokers, and are also now classified by TILA as either “qualified mortgages” or “non-qualified mortgages” (Section 32 high-cost loans), since RESPA loans must meet new TILA disclosure standards.

Definition of terms
15 U.S. Code 1602 §103
Added by H.R. 4173

A mortgage loan originator (MLO) includes a Department of Real Estate (DRE) licensee (broker or agent) who receives compensation or income for:

• taking a residential mortgage loan application;
• assisting a customer applying to obtain a residential mortgage loan;
• negotiating the terms of a residential mortgage loan; or
• advertising to provide services for residential mortgage loan applications.

Residential mortgage loan origination
15 U.S. Code 1602 §129B
Added by H.R. 4173

A mortgage loan originator (MLO) is a person registered, licensed and endorsed under state (DRE) licensing laws and the federal Secure and Fair Enforcement (SAFE) Act (Nationwide Mortgage Licensing System (NMLS) registry). All loan documents prepared by the MLO must include the MLO’s NMLS endorsement number.

Source of fees and steering prohibitions

15 U.S. Code 1602 §129B
Added by H.R. 4173
Effective: April 1, 2011

A mortgage loan originator’s (MLO) fees cannot vary (read: be calculated) based on any terms of the loan, except the principal.

A MLO who receives mortgage origination fees from the borrower cannot also accept MLO fees from any other source.

However, if the MLO does not receive any fees directly from the borrower, and the borrower does not make a payment of origination points, fees or discount points on the loan, he can receive fees from other sources.

The Federal Reserve Board of Governors (the Fed) regulations will prohibit an MLO from:

• steering a borrower into a loan with terms not reasonable for the borrower to pay back;
• steering a borrower into a loan with predatory terms such as excessive fees or rates [See Section 32 loans];
• steering a borrower away from qualified loans to unqualified loans [For definitions of qualified and non-qualified loans, please see below];
• discriminating against borrowers based on race, ethnicity, gender or age;
• misrepresenting the credit history of a borrower;
• misrepresenting the availability of a residential mortgage loan to a borrower;
• misrepresenting the appraised value of a property; or
• discouraging borrowers from seeking less expensive loans from other MLOs for which they qualify.

Fed regulations will not interfere with incentive payments an MLO may collect based on the number of loans he originates in a specific time period.

Editor’s note —For more information regarding Real Estate Settlement and Procedures Act (RESPA) loan broker regulation, see the September 2010 first tuesday Legislative Watch.

Mortgage loan originator liabilities
15 U.S. Code 1602 §129B
Added by H.R. 4173

A mortgage loan originator (MLO) who violates the Truth in Lending Act (TILA) is liable for:

• attorney’s fees; and
• the greater of the borrower’s actual money losses; or
• three times the amount of MLO fees.

The Federal Reserve Board of Governors’ RESPA loan regulation authority
15 U.S. Code 1602 §129B
Added by H.R. 4173

The Federal Reserve Board of Governors (Fed) now regulates residential mortgage loan practices which are abusive, unfair, deceptive, predatory or otherwise not in the best interest of the borrower. The Fed will modify existing residential mortgage loan disclosure requirements to protect the best interest of the borrower.

Minimum repayment standards for residential mortgage loans
15 U.S. Code 1631 §129C
Added by H.R. 4173

A lender may not make a Real Estate Settlement and Procedures Act (RESPA) loan until he conducts an assessment, based on documentation, that the borrower is able to repay the loan, taking into consideration:

• principal and interest payments;
• property taxes;
• hazard insurance;
• private mortgage insurance (PMI) or mortgage insurance premium (MIP);
• improvement district and homeowner’s association (HOA) assessments; and
• payment of other loans secured by the property.

To determine a borrower’s ability to repay a mortgage, a lender must consider the borrower’s:

• credit history;
• current income;
• expected future income;
• current obligations;
• debt-to-income (DTI) ratio;
• employment status; and
• any other financial resources available to the borrower for his repayment of the loan.

A lender must verify (read: document) expected income or assets by reviewing the borrower’s:

• W-2s;
• federal tax returns;
• payroll receipts;
• bank statements; and
• any other third-party documents verifying income.

Refinancing made, guaranteed or insured by federal agencies may be exempt from income verification if:

• the borrower is not 30 days or more past due on a loan;
• the refinance loan will not increase the principal balance except by fees and charges allotted to the agency in charge of refinancing;
• total points and fees (other than third-party fees) do not exceed three percent of the total loan amount;
• the interest rate on the refinancing is lower than the original loan’s interest rate (unless an adjustable-rate mortgage (ARM) loan is being refinanced by a fixed-rate mortgage (FRM));
• refinancing creates a fully amortized repayment schedule; and
• all transactions and negotiations satisfy requirements by the federal agency making, guaranteeing or insuring  the refinance loan.

The payment schedule for a RESPA loan must fully amortize the loan over the term of the loan.

To determine if a borrower is able to repay an interest-only loan, a lender is to use the payment amount required monthly to amortize a loan by its maturity due.

If seasonal income is used as a source of repayment on a residential mortgage loan, a lender may consider it in the underwriting and scheduling of payments.

Lenders are to consider loan balance increases due to negative amortization payment schedules when determining a borrower’s ability to repay.

To determine if a borrower is able to repay an ARM which allows a borrower to defer repaying principal or interest, a lender is to use a fully amortizing repayment schedule.

In determining a borrower’s ability to repay a loan, the lender is to calculate the monthly payment amount for principal and interest by assuming:

• the loan is fully funded at the time of the claim;
• the loan will be repaid in equal monthly amortizing payments over the term of the loan; and
• the interest rate is a fixed rate equal to the fully indexed rate at the time of the loan closing.

A fully indexed rate is the index rate of an ARM at the time the loan is made plus the margin that applies after the expiration of any introductory rate, also called the note rate.

Lenders may consider applications for refinancing the payoff of existing hybrid loans in which there will be a reduction in monthly payment by:

• considering the borrower’s good standing;
• considering if the refinancing would prevent a default; and
• offering rate discounts that would be available to new customers.

These regulations do not apply to reverse mortgages or bridge loans with a term of 12 months or less.

Definition of qualified mortgage
Added by H.R. 4173

A Truth in Lending Act (TILA)-qualified loan is a Real Estate Settlement and Procedures Act (RESPA) loan which is not a TILA Section 32, non-qualified, high-cost RESPA loan.

A qualified mortgage is any loan that falls within the parameters of a RESPA loan (a consumer loan secured by an owner- or non-owner-occupied one-to-four unit residential property), and:

• requires the borrower to make regular, periodic payments that do not:

o   increase the principal balance of the loan, called negotiation amortization; or

o   allow the borrower to defer payment of principal, called option-payment loans (except an allowable balloon loan as discussed below);

• does not result in a payment more than twice as large as the average payment, called a balloon payment (except an allowable balloon loan as discussed below);
• relies on verified and documented income for a determination of the ability to repay;
• in the case of a fixed-rate mortgage(FRM), requires a borrower to qualify based on a fully-amortizing loan schedule and takes into account the property taxes, hazard insurance and improvement and homeowners association (HOA) assessments;
• in the case of an adjustable-rate mortgage (ARM), requires a borrower to qualify based on the maximum rate permitted under the loan in the first five years on a fully-amortizing loan schedule and takes into account the property taxes, hazard insurance and improvement and HOA assessments;
• complies with all Fed regulations establishing the parameters for determining a borrower’s ability to pay;
• has points and fees that do not exceed three percent of the total loan amount;
• has a term that does not exceed 30 years; and
• in the case of a reverse mortgage, meets the standards set by the Federal Reserve Board of Governors (Fed).

Total points and fees may be calculated to exclude:

• two bona fide discount points only if the interest rate does not exceed the average prime offer rate by more than one percentage point; or
• one bona fide discount point only if the interest rate does not exceed the average prime offer rate by more than two percentage points.

A bona fide discount point is a loan discount point paid by the borrower in order to reduce the interest rate on a mortgage. The amount of the interest rate reduction purchased by bona fide discount points must be consistent with industry norms, often called a rate buy-down.

The Fed may adjust criteria for lenders of smaller loans by considering the impact of small loan criteria on rural areas or areas where home values are lower.

A balloon loan is considered a qualified mortgage if:

• it meets all the above requirements of a qualified mortgage, except the noted restrictions on balloon loans;
• the lender determines the borrower can reasonably repay the loan (excluding the balloon payment) with assets and income;
• the borrower qualifies based on a fully-amortizing loan schedule, taking into account the applicable property taxes, hazard insurance and improvement and HOA assessments;
• the lender making the loan:

o   operates in predominantly rural areas;

o   has a total number of annual residential mortgage loan originations not exceeding the Fed’s set limit;

o   retains the balloon loan in its portfolio; and

o   meets any other criteria established by the Fed.

The following federal agencies must establish rules for determining whether the loans they insure, guarantee or administer are qualified mortgages:

• the Department of Housing and Urban Development (HUD);
• the Department of Veterans Affairs (VA);
• the Department of Agriculture; and
• the Rural Housing Service.

Prepayment penalty restrictions
15 U.S. Code 1640 §129C; 15 U.S. Code 1639(c)(2)
Added by H.R. 4173

Prepayment penalties are prohibited on mortgage loans which are not qualified (read: section 32 loans). Prepayment provisions are also prohibited on the qualified mortgage loans which:

• have an adjustable interest rate (ARMs); or
• have an annual percentage rate (APR) exceeding the average prime offer rate in a comparable residential mortgage loan by:

o   1.5% or more on a first mortgage with a principal equal to or less than the conforming loan limits set by Freddie Mac;

o   2.5% or more on a first mortgage with a principal more than the conforming loan limits set by Freddie Mac; and

o   3.5% or more on a second or other subordinate mortgage.

The Federal Reserve Board of Governors (Fed) will publish a weekly update of average prime offer rates, and may publish multiple rates to correspond with various types of mortgages. The Fed will adjust applicable loan annual percentage rate (APR) thresholds as necessary.

Prepayment penalties on qualified mortgages cannot exceed:

• 3% of the outstanding balance on the loan during the 1^st year of payment beginning on the closing date of the loan;
• 2% of the outstanding balance on the loan during the 2^nd year of payment beginning on the closing date of the loan;
• 1% of the outstanding balance on the loan during the 3^rd year of payment beginning on the closing date of the loan;  and
• 0% after the initial three years following the closing date of the loan.

A lender offering a borrower a loan with a prepayment penalty will also offer him the option of a loan without a prepayment penalty.

Lenders are prohibited from financing any credit life, credit disability, credit unemployment, credit property insurance or any other accident, loss of income, life or health insurance, direct or indirect payments for debt cancellation unless:

• the insurance premiums, debt cancellation or suspension fees are paid in full on a monthly basis; and
• the insurance is credit unemployment insurance and the lender receives no direct or indirect compensation and the premiums are paid pursuant to another insurance contract and not paid to an affiliate of the lender.

A borrower and lender may arbitrate to settle a dispute on the transaction; however a residential mortgage loan or extension of credit secured by a borrower’s principal residence cannot include terms:

• requiring arbitration or any other non-judicial action for settling claims; or
• barring a borrower from bringing an action to court.

A lender may not make loans which may be subject to negative amortization unless, before entering into the loan agreement, the lender:

• provides the borrower with a statement disclosing:

o   the transaction might result in negative amortization;

o   the concept of negative amortization in a way that satisfies the Fed;

o   negative amortization increases the outstanding principal balance; and

o   negative amortization reduces the borrower’s equity in the property; and

• in the case of a first-time homebuyer, the lender receives documentation stating they have received homeownership counseling from an organization certified by the Secretary of HUD to provide first-time homebuyer counseling.

Protection against loss of anti-deficiency protection
15 U.S. Code 1607 §129C
Added by H.R. 4173

When the enforceability of a loan is subject to state (California) anti-deficiency law, before the loan closes, a lender or mortgage loan originator (MLO) is to provide the borrower with:

• a written notice explaining the anti-deficiency law; and
• the significance of losing its protection if the loan provides refinancing for an existing loan.

If the loan is a refinance, anti-deficiency notices must be provided prior to the borrower entering into a loan agreement with the lender.

A lender must disclose to the borrower before the loan closes:

• the policy regarding acceptance of partial payments;
• how partial payments will be applied to mortgages; and
• if partial payments will be placed in escrow.

Partial payment regulations do not apply to loans for timeshare plans.

Editor’s note — For information regarding strategic default, see the June 2010 first tuesday article, The contagious default strategy: stay and play.

TILA mandated consumer protection

15 U.S. Code 1602 §103
Added by H.B. 4173

Multifamily Mortgage Resolution Program

The Secretary of Housing and Urban Development (HUD) is to develop programs to protect tenants and owners of at-risk multi-family properties comprised of five or more units by:

• creating reasonable financing options for owners of multifamily properties based on the property’s rental income, operating expenses and reserves;
• maintaining the availability of federal, state and local subsidies;
• providing funds for the rehabilitation of multifamily properties; and
• facilitating the sale of multifamily properties by regulation when appropriate.

Home Affordable Modification Program (HAMP) guidelines

Lenders who have denied a borrower’s request for a loan modification under HAMP will be required by the Secretary of the Treasury (the Secretary) to provide the homeowner with all borrower-related input data used in any net present value (NPV) analyses.

The Treasury will maintain a web-based NPV calculator to provide homeowners with the ability to calculate the NPV of their mortgage and determine if their mortgage qualifies for modification under HAMP. Lenders may use a method for calculating NPV that differs from the method used on the Secretary’s website. The website will include provisions for homeowners to apply for a loan modification under HAMP. [To access the online mortgage modification application, visit www.makinghomeaffordable.gov]

The methodology used by the online calculator will be made publicly available by the secretary.

Protecting tenants after foreclosure

The date of a notice of foreclosure for purposes of commencing the tenant’s right to a 90-day notice to vacate, etc., is the date of the trustee’s sale.

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Section 32 consumer loans: TILA increases disclosures and tightens parameters

 

Reported by Kelli Galippo

The rules reported here are amendments and additions to the Truth in Lending Act (TILA) made by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Unless otherwise specified, these amendments became effective July 21, 2010. The Bureau of Consumer Financial Protection (BCFP) will finalize regulations implementing these amendments or additions to provide TILA’s Regulation Z protection which are effective when issued.

The real estate loans controlled here are Real Estate Settlement and Procedures Act (RESPA) loans (consumer-purpose loans secured by a one-to-four unit residential property, owner or non-owner occupied) made or arranged by mortgage loan brokers, and are also now classified by TILA as either “qualified mortgages” or “non-qualified mortgages” (Section 32 high-cost loans), since RESPA loans must meet new TILA disclosure standards.

Lender obligations and terms for principal residence Section 32 (high-cost) consumer loans
15 U.S. Code 1640 §130
Added by H.R. 4173

No lender may charge a fee for informing a borrower of the balance due on a Section 32 mortgage.

If payoff information is provided by fax or courier, a lender may charge a reasonable transmission fee for the fax or courier service. Before charging a transmission fee, the borrower is to be informed that payoff balance information is available at no charge.

If a lender has provided a borrower with information about their payoff balance four or more times in one year, they may charge a reasonable fee for any subsequent request by the borrower.

Payoff balances must be provided within five business days after the request is received.

Editor’s note — A Section 32 loan is a consumer Real Estate Settlement and Procedures Act (RESPA) loan secured by the borrower’s principal residence and is arranged at an interest rate that exceeds the threshold amount set by state and federal law, whichever is lower.

The charge for preparing and delivering a payoff demand is limited to $30 in California, unless the loan is insured by the Federal Housing Administration (FHA) or Veterans Affairs (VA). [CC §2943(e)(6)]

Pre-loan counseling certification
15 U.S. Code 1639 §129
Added by H.R. 4173

Before funding a Section 32 loan, the lender is to receive certification from a Department of Housing and Urban Development (HUD)-approved counselor that the borrower has received mortgage counseling about Section 32 loans. The counselor cannot be employed by the lender or an affiliate of the lender.

Before a counselor can certify that a borrower has received all necessary counseling, they must verify the borrower has received all required Real Estate Settlement Procedures Act (RESPA) statements.

If a lender or assignee of a Section 32 mortgage accidently fails to comply with any requirement, they will not be deemed to have violated the requirement if:

• within 30 days of the loan closing and before the borrower institutes any action, the borrower is notified or discovers the violation and a correction of the borrower’s choice  is made to either:

o   make the loan Section 32 compliant; or

o   change the terms of the loan so it becomes a qualified RESPA loan; or

• within 60 days of the lender’s discovery of the violation and before the borrower institutes any action, the borrower is notified of the violation and corrections are made to either:

o   make the loan Section 32 compliant; or

o   change the terms of the loan so it becomes a qualified RESPA loan.

No lender or assignee is liable for changes to make a mortgage qualified or Section 32 compliant if the borrower obtained the mortgage through fraud.

Hybrid ARM disclosure
15 U.S. Code 1631 §128
Added by H.R. 4173

A hybrid adjustable rate mortgage (ARM) is a loan with a fixed interest rate that adjusts to a variable interest rate after an introductory period. During the seventh month before the date on which the interest rate adjusts to a variable interest rate, the lender must provide the borrower with a written notice which includes:

• the index or formula used to make adjustments or reset the interest rate, along with a source of information about the index or formula;
• an explanation of how the new rate or payment is determined, including how the index is adjusted;
• a good faith estimate of the monthly payment that will be in effect after the date of the adjustment or reset, along with the basis for the estimate;
• a list of alternatives the borrower may choose to pursue before the date of adjustment or reset, including the actions borrowers must take to pursue the alternative, including:

o   refinancing;

o   renegotiating loan terms;

o   paying forbearance charges; and

o   pre-foreclosure sale;

• the contact information for loan counseling agencies approved by the Secretary of Housing and Urban Development (HUD); and
• the contact information for the state housing finance authority (California Housing Finance Agency (CalHFA)).

Other required Section 32 loan disclosures
15 U.S. Code 1638 §128
Added by H.R. 4173

For any consumer credit transaction other than an open credit plan:

When an impound account is established for the payment of taxes, insurance and assessments for an adjustable rate mortgage (ARM) loan, the lender must disclose:

• the maximum rate permitted by the note, and the amount for payment of taxes, insurance and assessments; and
• the amount of the fully indexed monthly payment of principal and interest and the amount including payment of taxes, insurance and assessments.

For all types of Section 32 mortgage loans, the lender must disclose the:

• total amount of settlement charges;
• amount of charges included in the loan;
• amount of charges the borrower must pay at closing;
• approximate wholesale rate of funds;
• total amount of other fees or required payments.
• total amount of fees paid to mortgage loan broker (MLB) in connection with the loan;
• amount of fees paid directly by the borrower;
• any additional amount paid to the MLB by the lender; and
• the total amount of interest the borrower will pay over the life of the loan as a percentage of the principal of the loan.

For each payment period, a statement must be given to the borrower that lists:

• the amount of principal obligation under the mortgage;
• the current interest rate for the loan;
• the date on which the current interest rate may reset or adjust;
• any fee to be charged for prepayment of principal;
• any late payment fees;
• contact information the borrower may use to get more information about their mortgage;
• contact information of counseling agencies available to the borrower that have been approved by HUD or a state authority; and
• any other information the Federal Reserve (Fed) prescribes.

The Fed will create a standard form that includes the above information. The above information is not required to be disclosed if the lender, assignee or servicer provides the borrower with a coupon payment book that provides the same information.

Definitions regarding Section 32 mortgages
15 U.S. Code 1602 §103
Added by H.R. 4173

A Section 32 mortgage is a Real Estate Settlement and Procedures Act (RESPA) loan, other than a reverse mortgage  or a purchase-assist loan, secured by the equity in the borrower’s principal residence which:

• has an annual percentage rate (APR) at closing exceeding the prime offer rate for a comparable transaction by more than 6.5% (8.5% if the residence is personal property (mobilehome or boat) and the transaction is for less than $50,000);
• is an equity loan with an APR at closing exceeding the prime offer rate for a comparable transaction by more than 8.5% ;
• has total points and fees, other than bona fide third party charges, that exceed:

o   5% of the total transaction amount, if the loan is for an amount of $20,000 or more; or

o   the lesser of 8% of the total transaction amount or $1,000 if the loan is for an amount of less than $20,000; or

• the lender is allowed to collect prepayment penalties:

o   more than 36 months after the loan transaction closes; or

o   exceeding, in aggregate, more than 2% of the prepaid amount.

The APR will be:

• for a fixed-rate loan, the rate in effect on the date of loan closing;
• for a loan with a varying interest rate based on an index, the index rate from the date of loan closing added to the maximum rate permitted at any time during the loan; or
• for any other transaction in which the interest rate may vary, the maximum rate allowed to be charged during the term of the loan.

When considering total points and fees included in the finance charge and compensation paid to mortgage loan brokers (MLBs), total points and fees will exclude:

• premium provided by an agency of the federal or state government;
• any amount not in excess of the amount payable under policies at the time of origination; and
• any insurance premium paid by the borrower after closing.

Editor’s note — The Section 32 threshold has changed from an APR that exceeds by more than 8% the prime offer rate for a comparable transaction to an APR that exceeds by more than 6.5% the prime offer rate for a comparable transaction.

For an increase or decrease in the annual percentage rate:

• when a mortgage is secured by a first trust deed on the borrower’s principal residence, and the APR will exceed  the average prime offer rate by 6.5% for a comparable transaction, the change cannot result in a rate less than 6% or greater than 10%; and
• when a junior mortgage is secured by the borrower’s principal residence, and the APR will exceed  the average prime offer rate by 8.5% for a comparable transaction, the change cannot result in a rate less than 8% or greater than 12%.

Points and fees include:

• all fees paid directly or indirectly by a borrower or lender to an MLB from any source, including an MLB who is also the lender in a table-funded transaction (a loan closed in the MLB’s name with funds advanced by someone other than the MLB and assigned at the same time to whoever provided the funds);
• premiums or other charges at or before closing for any credit life, credit disability, credit unemployment, credit property insurance or any accident, loss of income, life or health insurance, or any payment for debt cancellation (insurance premiums, debt cancellation or suspension fees will not be considered financed by the lender);
• the maximum prepayment fees and penalties the terms of the credit transaction provides can be charged; and
• any prepayment fees or penalties incurred by the borrower if the loan refinances an existing loan made or held by the same lender.

When calculating total points and fees, one of the following will be excluded:

• up to two bona fide discount points if the interest rate from which the mortgage’s interest rate will be discounted does not exceed by more than one percentage point:

o   the average prime offer rate; or

o   the average rate on a loan through which insurance is provided under title I of the National Housing Act (if secured by a personal property loan); or

• up to one bona fide discount point payable to the borrower if the interest rate from which the mortgage’s interest rate will be discounted does not exceed by more than two percentage points:

o   the average primer offer rate; or

o   the average rate on a loan through which insurance is provided under title I of the National Housing Act (if secured by a personal property loan).

A bona fide discount point is a discount point paid by the borrower in order to reduce the interest rate or time-price differential applicable to the mortgage. The interest rate reduction must always be reasonable and consistent with industry norms.

Prepayment penalty parameters
15 U.S. Code 1639 §129
Amended by H.R. 4173

No Section 32 mortgage may contain a payment more than twice as large as the average scheduled payment made previously, unless the payment schedule is adjusted to the irregular income of the borrower.

A lender may not recommend or encourage default on an existing loan before or in connection with closing of a Section 32 mortgage that refinances the existing loan.

Lenders may only impose late fees on Section 32 mortgages:

• in an amount less than 4% of the amount of the past due payment;
• if the loan documents specifically authorize a late fee;
• at the end of the 15-day period beginning on the date the payment is due (the period is 30 days in the case of a loan on which interest on each installment is paid in advance); or
• once for a single late payment.

Late fees may not be charged on a previous late fee.

For loan agreements that use any payment to first pay off past-due principal, a lender may impose a late fee for any principal due until the default is cured.

No Section 32 mortgage can contain a provision permitting a lender to accelerate payment on the loan unless repayment of a loan is accelerated by default in payment, violation of a due-on-sale provision or another provision unrelated to the payment schedule.

No lender may directly or indirectly finance:

• any prepayment or penalty fee in a refinancing transaction if the lender is the note-holder of the note being refinanced; or
• any points or fees.

In the case of a Section 32 mortgage, a lender is prohibited from taking any action to:

• structure a loan transaction as an open-end credit plan in order to evade government provisions; or
• divide any loan into separate parts in order to evade government provisions.

A lender, successor in interest, assignee or any agent may not charge a borrower any fee to modify, renew, extend or amend a Section 32 mortgage or to defer payment.

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Notice of trustee’s sale (NOTS) may be filed five days before lapse of Notice of Default (NOD) period

 

Reported by Jeffery Marino

The rules reported here shorten the amount of time mortgage loan trustees must wait to file a notice of trustee’s sale (NOTS) after filing a notice of default (NOD).

Civil Code §§ 2924 and 2924c
Amended by S.B. 1221
Effective: January 1, 2011

Prior to amending California Civil Code §§ 2924 and 2924c, mortgage loan trustees were required to file an NOTS no sooner than three months after the lapse of an NOD. This amendment allows mortgage loan trustees to file an NOTS up to five days before the lapse of the three-month NOD period, as long as the trustee’s sale is scheduled no sooner than three months and twenty days after the NOD has been filed.

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Mortgage loan originator license endorsement guidelines for real estate licensees

 

Reported by Heather McCartney

The rules reported here establish the guidelines for MLO license endorsement.

A real estate licensee must hold an MLO license endorsement to perform mortgage services

Business and Professional Code §10137
Amended by: S.B. 1137
Effective: January 1, 2011

Any real estate licensee performing services which require a mortgage loan originator (MLO) license endorsement cannot be employed or compensated by a real estate broker without that licensee holding an MLO license endorsement issued by the Department of Real Estate (DRE).

Fines and/or imprisonment for individuals performing or advertising to perform MLO activities without DRE MLO endorsement

Business and Professional Code §10139
Amended by: S.B. 1137
Effective: January 1, 2011

A person acting or advertising himself as an MLO without the DRE MLO endorsement is guilty of a public offense punishable by:

• a fine not exceeding $20,000;
• imprisonment in the county jail for a maximum of six months; or
• both the fine and imprisonment.

A corporation acting as an MLO without the DRE MLO endorsement is punishable by a fine not exceeding $60,000.

Licensees performing MLO activities without an MLO endorsement must notify DRE within 30 days or face fines

Business and Professional Code §10166.02
Amended by: S.B. 1137
Effective: January 1, 2011

A real estate broker or salesperson who makes, arranges or service mortgages must, within 30 days of performing these activities, notify the DRE in writing.  Failure to do so subjects the licensee to a penalty of $50 per day for up to 30 days. On the 31^st day, the penalty will increase to $100 a day. This will continue until written notification is received or the accruing penalty reaches $10,000.

If a real estate broker or salesperson fails to pay this penalty, the commissioner may suspend or revoke his real estate license.

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An HOA may request copies of a notice of default, a notice of sale and a trustee’s deed

 

Reported by Kelli Galippo

This rule clarifies a request by a common interest development (CID) homeowners’ association (HOA) for a mailed copy of any recorded notice of default, notice of sale or trustee’s deed upon the sale of a unit within the CID.

Civil Code §2924b
Amended by: A.B. 2016
Effective: August 13, 2010

A homeowners’ association (HOA) may record a request for a copy of the notice of default, notice of sale and trustee’s deed on an owner’s unit within the common interest development (CID) governed by the HOA.

An HOA’s request for notices recorded must include a legal description or the assessor’s parcel number of all parcels governed by the HOA.

Related topics:

Posted by Jeffery Marino | Nov 11, 2010 | Economics, Laws and Regulations, Real Estate | 0

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

No demographic is recession-proof — not even the seemingly untouchable Baby Boomers, defined by the US Census Bureau (the Bureau) as the generation born between 1946 and 1964, are immune to the vicissitudes of the Great Recession.  As the latter half of the Baby-Boom generation struggles under mounting debt, they are being forced to postpone what was once considered their birthright: retirement at 55. [For more information on Baby Boomers and their effect on the economic recovery, see the July 2010 first tuesday article, Boomers retire, and California trembles.]

The lure of accumulation during the Millennium Boom proved too great for the Generation Jones — the latter half of the Baby Boomers, born from 1954 to 1964, so named for their desire to “keep up with the Joneses.” Even before the Great Recession technically began, the Joneses were sinking deeper in debt. From 2000 to 2008, median debt for households led by someone 55 years of age or older almost doubled to $66,000.

Likewise, in the years before the fall, the number of older bankruptcy filers also soared. From 1991 to 2007, bankruptcy filings among people 65 years of age and older swelled by 150%. Bankruptcy filings for those between the ages 75 to 84 increased by a staggering 433%.

But why are so many seniors going bust? The credit card debt amassed by many during the fat times of the Millennium Boom still needs to be paid off. Older bankruptcy filers have 50% more credit card debt on average than Generation X-ers, the age group around age 30 to 40 today. The median credit card debt for seniors in 2007 was $22,562, compared to $13,615 for younger bankruptcy filers.

Many Boomers are also adding to their total debt as they continue to care for their adult children who have been socially and economically stunted by the Great Recession. Not only is there a greater number of young adults moving back in with their parents after unexpected job losses, but more college graduates who cannot find suitable employment straight out of college are trading in their new-found independence for the financial stability of their childhood home.

Medical bills are an issue for any aging population, but for those suffering under the constraints of a flagging economy, unexpected health problems are leading to bankruptcy court. 39.1% of senior bankruptcy filers said a medical problem was the reason for their filing and 32.5% directly attributed medical bills to the cause of their bankruptcy.

Perhaps the single greatest reason Baby Boomers have to defer their dreams of retirement: job loss. In September 2010, the unemployment rate for Americans 55 and older was 7.2%, a notable increase from the 2.6% unemployment rate for seniors in September 2006.

first tuesday take: A deferred retirement for Baby Boomers is an unfortunate economic necessity in this recovery period. The U.S. economy has been riding the wave of the post World War II boom — the success and stability of the Baby Boomers is providing a much needed safety net for those in Generation Y who are struggling to leave the nest and begin creating their own economic vitality.

Unfortunately, the struggles of the Baby Boomers will have a residual effect on the stressed California real estate market. Rather than purchasing vacation homes and renting beach-front condos, Boomers will continue to financially recoil, either filing for bankruptcy or simply squirreling their savings away while waiting for Junior to finally move out. Additionally, these Boomers are staying on the job longer in order to supplement their ravished nest eggs, in the process remaining in their homes and delaying the move to a more senior-friendly environment typically associated with retirement.

The standard of living has been compromised for all demographics as of late, but there is a silver lining which bodes very well for the future of California. As jobs remain scarce, Generation Y is acquiring more education and training than ever before. Baby Boomers are forced to make a greater investment in the future of their children, the Ys, than was previously required throughout history — especially during the post-war heyday of the proverbial self-starter.

This investment will soon pay off as younger generations put their substantial education and training to work in order to lead the way to a brighter economic future. The issue then becomes, where they will choose to live (read: rent and buy homes).  [For more information on the ability of Generation Y to invigorate California’s real estate market within the decade, see the October 2010 first tuesday article, The demographics forging California’s real estate market: a study of forthcoming trends and opportunities.]

Re: “For many over 55, debt defers dreams” from USA Today

Related topics:
baby boomers, bankruptcy, generation x (gen x), generation y (gen y), recession

Posted by ft Editorial Staff | Sep 13, 2010 | New Laws, Real Estate | 0

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

For a total list of all the real estate laws digested by first tuesday for the 2009-2010 legislative session, click here.

Topics:

1. Mobilehome Residency Law now delivered annually to residents
2. County recorders authorized to notify parties to a deed of recording date
3. Advance fee for broker services clarified

Reported by Krista Craig

This rule clarifies when the management of a mobilehome park must give residents a copy of the Mobilehome Residency Law.

Mobilehome Residency Law now delivered annually to residents

Civil Code §798.15
Amended by: S.B. 2120
Effective: January 1, 2011

The management of a mobilehome park is to provide mobilehome park residents with a copy of the Mobilehome Residency Law (MRL) by February 1st of each year, but only if significant legislative changes are made to the MRL during the prior year.

To fulfill this requirement to provide annual notices of a change in the MRL, mobilehome park management may either:

• provide all mobilehome owners with a copy of the MRL; or
• notify homeowners in writing of their right to obtain a copy of the MRL free of charge from the mobilehome park management within seven days of a request.

Reported by Heather McCartney

This law authorizes county recorders to notify all parties signing a deed that the deed has been recorded.

County recorders authorized to notify parties to a deed of recording date

Government Code §27297.7
Amended by A.B. 2618
Effective: January 1, 2011

Within 30 days of the recordation of a deed, quitclaim deed or deed of trust, recorders in all California counties have the authorization to voluntarily notify by mail all parties signing the deed. Previously, only country recorders in Riverside and Los Angeles counties were give this authorization.

Failure to voluntarily notify the parties who signed the deed, quitclaim deed or deed of trust does not result in any liability against the recorder or the county. The recorder is not required to retain a copy of the returned notice if undeliverable.

As a condition of recording, the recorder may demand the deed include an assessor’s identification number in the following format:

Assessor’s Identification Number ____-_____-____.

Reported by Jeffery Marino

This amendment explicitly states several exceptions to advance fee rules previously implied in the law.

Advance fee for broker services clarified

Business and Professions Code § 10026
Amended by A.B. 1762
Effective: January 1, 2011

“Advance fee” is a fee collected by a real estate broker or his agent for a service requiring a license before the service is fully and completely performed by the broker or agent.

Three situations for a broker’s receipt of an advance fee are not covered by “advance fee” rules.  The exceptions include:

• a broker’s receipt of client funds to pay the costs of advertisements in a newspaper or any other written publication for the purposes of marketing a property for sale or lease;

• a fee earned under a limited service contract on completion of the service. A limited service contract is a written agreement for statutorily-listed real estate services to include the sale, exchange, leasing and renting of real estate. Under a limited service contract, these services are performed as stand-alone services, on a task-by-task basis, and compensation is received on a per-service basis upon completion of the service; and
• an employment agreement for payment of a broker fee earned and payable upon the completion of services to be rendered.

A licensed broker accepting an advance fee must submit a copy of the advance fee agreement they intend to use to the Department of Real Estate (DRE) for approval before it may be used in a transaction. The DRE publishes a form which, if submitted to the DRE for approval, will be approved. [For more information on the requirements for a valid advance fee agreement, see the DRE memo, Essential elements of an advance fee agreement . For an example of a valid advance fee agreement, see the DRE memo, Advance fee agreement sample.]

Editor’s note — This amendment does not change or alter the conduct of brokers or sales agents. A legislative analyst working on this bill commented that none of the situations listed above have ever been interpreted by the Department of Real Estate (DRE) as requiring an advance fee agreement. A labor union proposed this amendment as a preemptive measure to ensure the DRE does not attempt to require an advance fee agreement for these contingency fee situations in the future.

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