January 2016: Several New Laws Affecting REALTORS® in 2016

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BY: JOHN V. GIARDINELLI, ATTORNEY AT LAW
CASEY MCINTOSH, PARALEGAL

California’s Legislature once again boasted of a busy year in 2015, preparing and passing numerous new laws. Many of these laws may have an effect on the practice of real estate. Brokers and agents would do well to keep abreast of them.

Continuing Education Requirements for Brokers – Assembly Bill 345
In mid-July, Governor Brown signed Assembly Bill 345 into law, thus enacting a new requirement for real estate brokers’ continuing education. Current law requires a real estate broker to renew his or her license every four years. Pursuant to Business & Professions Code § 10170.5, within that 4-year period, the broker must complete 45 clock hours of education, now including a 3-hour course in the management of offices and supervision of licensed activities.

The California Association of REALTORS® backed this bill, stating, “Since the California Bureau of Real Estate can hold a manager accountable for failure to supervise, C.A.R. believes it important that a real estate broker understand how to properly manage real estate offices, salespersons, and broker associates, in order to minimize risk for all parties involved.” The new requirement went into effect January 1, 2016. For more information on continuing education requirements, please see our September 2015 Courtside Newsletter, which can be found on our website: www.glawgroupapc.com.

Personal Information – Senate Bill 560
Business & Professions Code § 30 has been amended to include the language that no later than January 1, 2016, the Bureau of Real Estate (CalBRE) will require from licensees either an individual tax payer identification number (TIN) or social security number (SSN), if the licensee is an individual. Upon request from the Franchise Tax Board or Employment Development Department, CalBRE will provide the licensee’s information, including the TIN or SSN.

Additional Recording Fees – Assembly Bill 661
Pursuant to current law, a $10 fee is paid at the time of recording of every real estate instrument, paper, or notice required or permitted by law to be recorded within that county. The fee goes toward the Real Estate Fraud Prosecution Trust Fund, which supports local law enforcement activities to fight real estate fraud crimes. AB 661 was drafted to clarify some ambiguities in the language of exemption from the fee. Codified in Government Code § 27388, the fee does not apply to any real estate instrument, paper, or notice that is:

  1. Accompanied by a declaration stating that the transfer is subject to a documentary transfer tax;
  2. Recorded concurrently with a transfer subject to a documentary transfer tax; or,
  3. Presented for recording within the same business day as, and is related to the recording of, a transfer subject to a documentary transfer tax.

This law is effective as of January 1, 2016.

Fire Prevention Fee –Assembly Bill 301
The State Board of Forestry and Fire Protection has adopted an emergency regulation under Public Resources Code § 4212 to levy an annual fire prevention fee upon each “habitable structure” within a state responsibility area. The owner of the structure as of July 1st of the year the fee is due is responsible for payment of the fee. AB 301 allows the owner of the structure the ability to negotiate payment of the fee as part of the terms of the sale of the structure. However, in addition to this language, Public Resources Code § 4213.1(a)(2) contains the caveat that the liability for payment of the fee still rests upon the owner of the structure as of July 1st. This law went into effect January 1, 2016.

Private Transfer Fees – Assembly Bill 807
Current law defines a “transfer fee” as “any fee payment requirement imposed within a covenant, restriction, or condition contained in any deed, contract, security instrument, or other document affecting the transfer or sale of, or any interest in, real property that requires a fee be paid as a result of transfer of the real property.” It is, effectively, a private tax to be paid upon the sale of a property. Assembly Bill 807, sponsored by the California Association of REALTORS®, “expands Private Transfer Fee (PFT) recordation requirements to include PTFs whose payment does not occur upon a change in ownership or that are not based on sales price.” Furthermore, the disclosure of the PFTs must be in a single document and not incorporated by reference to other documents.

Lawn Appearance – Assembly Bill 1
Many issues and concerns have arisen regarding the appearance of lawns and the limitation for watering said lawns during California’s drought crisis. In an effort at clarity, AB 1 was passed and codified into Government Code § 8627.7, stating that during a state of emergency based on drought conditions, “a city, county, or city and county shall not impose a fine under any ordinance for a failure to water a lawn or for having a brown lawn.” This law went into effect January 1, 2016.

Recycled Water – Assembly Bill 786
As a result of the ongoing state of emergency regarding the drought, the legislature has been concerned with preserving potable water and limiting its use to water outdoor landscaping. To that effect, Civil Code § 4735 includes language stating that an association cannot impose a fine or assessment against a homeowner for reducing or eliminating watering his landscaping or lawns. However, AB 786 has amended CC§4735 to allow an assessment or fine to be imposed against “an owner of a separate interest that…receives recycled water…and fails to use that recycled water for landscaping irrigation.” Due to the emergent nature of the drought, this law went into immediate effect upon being passed by the legislature (October 11, 2015).

Water-Efficient Landscaping – Assembly Bill 349
Passed in conjunction with AB 786 in response to the drought crisis, AB 349 further amends Civil Code § 4735. Governing documents or landscaping policies or guidelines are void and unenforceable if they prohibit the use of artificial turf or synthetic grass. Furthermore, owners of a separate interest who implement water-efficient landscaping measures in response to the state of emergency shall not be required to reverse or remove the water-efficient landscaping measure when the state of emergency is declared to be over. This law was also enacted immediately (September 4, 2015.)

Drought-Tolerant Landscaping – Assembly Bill 1164.
On April 1, 2015, Gov. Brown issued Executive order directing the State Water Resources Control Board to implement mandatory water reduction across the state of California. The goal is to reduce water usage by 25%, and with landscape irrigation representing 43% of urban water use, efforts have been made to replace existing landscaping with drought-tolerant landscaping, including artificial turf or synthetic grass. Whilst laws have been implemented stating a city and/or county may not prohibit the installation of drought-tolerant landscaping, synthetic grass, or artificial turf, AB 1164 has added caveats to that prohibition. Government Code § 53087.7(b) states that a city and/or county may impose reasonable restrictions on the type of drought-tolerant landscaping that may be installed on residential property, provided the restrictions do not:

  1. Substantially increase the cost of installation;
  2. Effectively prohibit installation; and/or,
  3. Significantly impede the installation, such as with the requirement that a yard must be covered with living plant material.

As with the other water-use bills discussed herein, this law went into effect immediately (October 9, 2015).

Clotheslines or Drying Racks – Assembly Bill 1448
Codified in Civil Code §§ 1940.20 and 4750.10, landlords may no longer restrict tenants from using a clothesline or drying rack. Furthermore, any governing document, such as those issued by homeowner associations, may not prohibit or unreasonably restrict the use of clotheslines or drying racks. As defined, a “clothesline” is a cord, rope, or wire from which laundered items may be hung to dry or air. A “drying rack” is considered to be an “apparatus” from which laundered items may be hung to dry or air. A balcony, railing, awning or other part of the structure or building is not considered a drying rack or clothesline. This new law became effective January 1, 2016.


December 2015: C.A.R. to Release Revised Forms in December

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BY: KELLY A. NEAVEL, ATTORNEY AT LAW
CASEY MCINTOSH, PARALEGAL

The California Association of REALTORS® (C.A.R.) will release eight (8) new and twenty-one (21) revised forms during the week of December 14, 2015. It will also discontinue the use of one form. In our last Courtside Newsletter, we discussed the eight new forms being released; past Newsletters can be accessed on our website at www.glawgroupapc.com. In this month’s Newsletter, we are going to explore the revised forms that C.A.R. will be  issuing, with the exception of the Residential Purchase Agreement (RPA) and the Residential Listing Agreement (RLA). A special Courtside Newsflash will be issued on those forms in the coming weeks.

REVISED FORMS

1. Additional Agent Acknowledgement (AAA)

The AAA has been revised to act as an addendum to the Purchase Agreement, Residential Listing Agreement, Buyer Representation Agreement, or other “Agreement.” The form also now states that, “Listing Broker and Seller signatures are not necessary if this form is only used to modify a Buyer Representation Agreement. Selling Broker and Buyer signatures are not necessary if this form is only used to modify a Listing Agreement.” According to C.A.R., “Even though multiple agents are named, the form only needs to be signed by one.”

2. Addendum (ADM)

The addendum has been updated to include a line that indicates whether the form is being used to modify a Transfer Disclosure Statement (TDS). It also includes the caveat that, “An amendment to the TDS may give the buyer the right to rescind.”

3. Commission Agreement (CA)

The Commission Agreement contains a new segment on the benefits of using the MLS, the impact of opting out of the MLS, and the requirement for brokers to present all offers to the seller, unless seller gives written instruction to the contrary. The form addresses closed and private listing clubs or groups, also known as “pocket listings,” and how those may impact the sale of a property. It also contains an acknowledgement in which the seller indicates he understands that excluding the listing from the MLS could mean: “(a) real estate agents and brokers from other real estate offices, and their buyer clients, who have access to that MLS may not be aware that Seller’s Property is offered for sale; (b) Information about Seller’s Property will not be transmitted to various real estate Internet sites that are used by the public to search for property listings; (c) real estate agents, brokers and members of the public may be unaware of the terms and conditions under which Seller is marketing the Property.” Furthermore, the arbitration and mediation terms have also been updated on the CA.

4. Single Party Compensation Agreement (SP)

Like the Commission Agreement (CA) form, Single Party Compensation Agreement contains a new segment on the benefits of using the MLS, the impact of opting out of the MLS, and the requirement for brokers to present all offers to the seller. It is the same language used in the CA, and therefore also addresses “pocket listings” and the potential consequences of utilizing a closed- or private-listing club or group. The “Dispute Resolution” segment of the form has also been revised, adding an arbitration and mediation clause for seller and broker to acknowledge.

5. Commercial Lease Agreement (CL)
Paragraph 29, “Insurance,” of the Commercial Lease Agreement has been revised to include the tenant’s requirement to carry property insurance “in an amount sufficient to cover the replacement cost of the property if Tenant is responsible for [maintaining the roof, foundation, exterior walls, common areas, and other specified areas.]”
6. Contingency for Sale of Buyer’s Property (COP)

A “Notice to Remove Contingencies” segment has been added to the end of the COP form, which gives the buyer notice to remove the contingencies specified in Paragraph 7A entitled, “Back Up Offers and Seller Right to Have Buyer Remove Contingencies or Cancel.” As a result, the buyer and seller will no longer need to use the Notice to Buyer to Perform (NBP) to remove contingencies.

7-9. Commercial Property Purchase Agreement (CPA);

Residential Income Property Purchase Agreement and Joint Escrow Instructions (RIPA); Vacant Land Purchase Agreement and Joint Escrow Instructions (VLPA)

The “Changes During Escrow” section of the CPA, RIPA, and VLPA has been revised to add a segment stating, “Within 5 (or __) Days After receipt of such notice [of any Proposed Changes], Buyer, in writing, may give Seller notice of Buyer’s objections to the Proposed Changes in which case Seller shall not make the Proposed Changes.” This effectively prevents seller from making changes to any leases, service contracts, or property conditions during escrow.

10. Exempt Seller Disclosure (formerly SSD) (ESD)

The ESD was formerly the Supplemental and Contractual Disclosure (SSD) form. Paragraph 2 has been added, which makes sellers aware that although they may be exempt from filling out the TDS, there are other disclosures under California law that they are obligated to make to buyers. Sellers who are not legally required to complete a TDS can use this form to make other required disclosures. It is not okay to use previous versions of this form.

11. Residential Lease or Month-to-Month Rental Agreement (LR)

The LR has been revised to include updates to several sections of the form, including:

  • “Rent” (Paragraph 3E): “Rent Payments received by Landlord shall be applied to the earliest amount(s) due or past due.”
  • “Maintenance Use and Reporting” (Paragraph 11E): “Landlord and Tenant agree that State or local water use restrictions shall supersede any obligation of Landlord or Tenant to water or maintain any garden, landscaping, trees or shrubs pursuant to [previous stipulations in Paragraph 11.]”
  • “Pets” (Paragraph 13): A checkbox regarding the C.A.R. Pet Addendum has been added to indicate that pets may be allowed on or about the premises.
  • “Waterbeds/Portable Washers” (Paragraph 34) “Tenant shall not use, on the Premises, □ Portable Dishwasher □ Portable Washing Machine.”
  • “Attorney Fees” (Paragraph 40) “In any action or proceeding arising out of this Agreement, the prevailing party between Landlord and Tenant shall be entitled to reasonable attorney fees and costs collectively not to exceed $1,000 (or $____), except as provided in paragraph 39A [Mediation].”

A space for the landlord’s signature has also been provided.

12. Application to Rent/Screening Fee (LRA)

On the Application to Rent (LRA), the Social Security Number moved from the tenant information (“Application to Rent”) section to the “Screening Fee” section (Section II).

13. Notice to Perform Covenant (Cure) or Quit (PCQ)

Paragraph 1B has been added to the PQC to allow for the form to be used to pay a monetary obligation other than that of past due rent. The section includes to whom the money is owed, and when and where it should be paid.

14. Property Management Agreement (PMA)

The term “Broker” has been replaced with the term “Property Manager” throughout the agreement. Paragraph D, “Repair; Maintenance” has been updated to include the provision that, “Owner agrees that state and local water use restriction will supersede any obligation by Property Manager or any Tenant to water/maintain gardens, landscaping trees or shrubs.”

15. Seller Response and Buyer Reply to Request for Repair (RRRR)

The RRRR has been revised to include a section where the buyer can accept the seller’s response to buyer’s requests with modifications (Paragraph 1B under “Buyer Reply to Seller Response”). Another section was added that only applies if the buyer checks the box for 1B. This section (aptly titled “Only Applies If Buyer Checks 1B”), allows the seller to indicate whether he agrees or rejects the buyer’s modifications.

16. Seller’s Advisory (SA)

The Seller’s advisory now contains revisions to Paragraph D, “Government Required Repairs, Replacements and Alterations,” which includes instructions regarding smoke alarms and brace water heaters. Paragraph 4A, “Pre-Sale Inspections and Considerations,” has been revised to include advice about how to prepare the property for sale, including “making cosmetic improvements, and staging.” It also includes language regarding pre-sale inspections, in order to be made aware of, and possibly fix, faults in the home prior to the buyer’s eventual inspection.

17. Statewide Buyer and Seller Advisory (SBSA)

Paragraph 20, “Future Repairs, Replacements and Remodels,” has been updated to include language regarding the eventual discontinuation of the use of R-22 Freon and new efficiency standards for water heaters. These changes will impact the repairs and replacements of air conditioning units and heat pumps as “… replacement water heaters will generally be larger than existing units and may not fit in the existing space” and “additional venting and other modifications may be required as well.”

Paragraph 35, “PACE Loans and Liens” has also been added to provide information regarding Property Assessed Clean Energy (PACE) program loans, (also be referred to as HERO or SCEIP programs). The programs allow property owners to finance energy and water conservation improvements through an assessment on the owner’s property. If a property owner chooses to utilize this program, a lien similar to a tax lien is placed on the property, which the owner is required to disclose. The form directs the buyer to request the C.A.R. Legal Q&A “PACE Programs and Solar Leases” from the broker for further information.

Paragraph 36, “Solar Panel Leases,” has also been added to the SBSA, which provides information regarding the standard practices behind leased and owned solar panels. Although leased panels may be considered personal property, they are included in the sale of the property and must be disclosed to the buyer, along with the any documentation concerning the lease and system. The buyer can then investigate the solar panel system and may assume the lease, which is generally secured by leasing companies by a UCC-1 form giving notice of a creditor’s security interest against the property. The form again directs the buyer to request the C.A.R. Legal Q&A “PACE Programs and Solar Panels” from his broker for more information.

Lastly, Paragraph 37, “Homeowner Associations and Covenants, Conditions and Restrictions (“CC&Rs”); Charging Stations,” has been updated to include a reference to the C.A.R. Legal Q&A entitled, “Homeowners’ Associations: A Guide for REALTORS®.” The buyer can request this from the broker for review.

18. Seller Property Questionnaire (SPQ)

Paragraph V.B., “Repairs and Alterations,” now includes a segment in which the seller can indicate whether there have been “any alterations, modifications, replacements, improvements, remodeling, or material repairs to the property done for the purpose of energy or water efficiency improvement or renewable energy.” Paragraph V.J, “Title Ownership, Liens, and Legal Claims,” has also been updated to allow the seller to reference “any PACE lien (such as HERO or SCEIP) or other lien…” against the property and “the cost of any alteration, modification, replacement, improvement, remodel or material repair of the Property being paid by an assessment on the Property tax bill.”

19. Seller Multiple Counter Offer (SMCO)

The Seller Multiple Counter Offer has undergone revisions for the sake of clarity. Specifically, Paragraph 2, “Binding Effect,” has been updated to indicate the conditions under which the Multiple Counter Offer is considered binding on buyer and seller:

  • “Seller signs in paragraph 5 [“Seller Makes this Multiple Counter Offer on the Terms Above and Acknowledges Receipt of a Copy”].
  • “Buyer signs in paragraph 7 [“Acceptance”].
  • “Seller signs in paragraph 8 [“Acceptance of Seller Multiple Counter Offer”], and Buyer receives a copy of the Multiple Counter Offer with all of the signatures.

“…Prior to the completion of all of the foregoing, Buyer and Seller shall have no duties or obligations for the purchase or sale of the property.”

Paragraphs 3, “Expiration of Seller Multiple Counter Offer,” and 6, “Acceptance of Seller Multiple Counter Offer,” have been changed so the buyer’s response and seller’s selection do not have to occur in same time period. Paragraph 4, “Marketing to Other Buyers,” has also been added to indicate that the seller has the right to continue to market the property for sale and accept any other offers, prior to the seller selection of the SMCO.

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As always, should you have any questions or concerns regarding these forms, we encourage you seek qualified counsel—either through an attorney or your local REALTOR® Association—for answers. Look out for our Courtside Newsflash regarding the Residential Purchase Agreement (RPA) and the Residential Listing Agreement (RLA).


November 2015: California Association of REALTORS® to Release New Forms in December

PDF Version

BY: KELLY A. NEAVEL, ATTORNEY AT LAW
CASEY MCINTOSH, PARALEGAL

The California Association of REALTORS® (C.A.R.) will release eight (8) new and twenty-one (21) revised forms during the week of December 14, 2015. It will also discontinue the use of one form. In this month’s Courtside Newsletter, we are going to explore the new forms that C.A.R. will be issuing in December.

New Forms

1) Agricultural Addendum (AGAD) This form was created with the sale of agricultural property with an improved residence in mind. The form outlines disclosures that are specific to agricultural property, including whether the property:

  • is “in, or adjacent to, an area with Right to Farm rights” (Paragraph 1.A.4);
  • is landlocked (Paragraph 1.A.8);
  • has any soil problems, such as slippage sliding, flooding,drainage, grading or other problems (Paragraph 1.A.11); or,
  • is subject to any restrictions for agricultural use pursuant to the Williamson Act (Paragraph 1.A.2).

The form goes on to outline other disclosures that may interest a buyer, as well as advises the buyer to consider:

  • Size, lines, access and boundaries;
  • Zoning and land use;
  • Utilities and service;
  • Environmental hazards;
  • Geologic conditions;
  • Natural hazard zoning;
  • Property damage;
  • Neighborhood, area and other property conditions;
  • Common interest subdivisions;
  • Special taxes;
  • Rental property restrictions; and,
  • Manufactured home placement.

Both the buyer and seller sign this form.

2) Arbitration Agreement (ARB) The Arbitration Agreement is a form that the buyer, seller, and brokers may sign, agreeing “that any dispute or claim in Law or equity arising between them out of the Purchase Agreement, Listing Agreement, Buyer Representation Agreement, Other [agreement], or any resulting transaction, which is not settled through mediation, shall be decided by neutral, binding arbitration.” The form goes on to list such exclusions as:

(i) “a judicial or non-judicial foreclosure or other action or proceeding to enforce a deed of trust, mortgage or installment land sale contract as defined in Civil Code §2985;
(ii) “an unlawful detainer action; and
(iii) “any matter that is within the jurisdiction of a probate, small claims or bankruptcy court.”

Brokers who do not sign the Arbitration Agreement may participate in arbitration should they, “in writing, agree to such arbitration prior to, or within a reasonable time after, the dispute or claim is presented to the Broker.” The Agreement also explains the requirements for the arbitrator and the right to discovery pursuant to California law.

3) Condominium Conversion Subdivision Purchase Agreement and Joint Escrow Instructions (CCSPA) The CCSPA “satisfies [California Bureau of Real Estate (CalBRE)] subdivision requirements for a unit that was formerly an apartment but converted to a condominium.” According to CalBRE, “Subdivision laws enforced by the CalBRE help ensure that subdividers deliver to buyers what was agreed to at the time of sale.” Specifically, the CCSPA includes disclosures regarding Public Reports, Airport Zones, the type of subdivision to be conveyed (in this case, a condominium), and other disclosures and reports, as outlined in the CalBRE “California Homebuyers ‘Bill of Rights.’” This “Bill of Rights” can be found on CalBRE’s website: www.dre.ca.gov. The CCSPA form is for use upon firstsale following the conversion; subsequent sales will use the Residential Purchase Agreement (RPA).

4) Completed Residence Subdivision Purchase Agreement and Joint Escrow Instructions (CRSPA) The CRSPA is another form that was created to satisfy CalBRE subdivision requirements, similar to the CCSPA. This form is for the first sale of a new property with an already built home and includes disclosures regarding Public Reports, and paragraphs regarding “Builder Limited Contractual Warranties” and “Procedures for Action on Construction Defects,” amongst others that will concern purchasers of the property. Any resale of the property will use the RPA.

5) Delivery of Notices Addendum (DNA) The DNA is a new form that allows buyer(s) and seller(s) to agree upon terms of delivery of notifications, once a contract has been entered into. While it cannot be used prior to entering into a contract (“Agreement,” such as the RPA), once a contract has been signed between buyer and seller, the DNA establishes the following:

  • “Deliver,” “Delivered” or “Delivery,” regardless of the method used (i.e. mail, e-mail, other), means and shall be effective upon the earliest of (i) personal receipt by the person(s) or as specified in the Agreement, or (ii) deemed receipt as specified below:
  • Mail Delivery: Notice sent by email shall be deemed received three (or ___) Days After proof of mailing, if sent by first class mail or better to the address indicated below.
  • [If Checked] E-mail Delivery: Notice sent by email to email address #1 below, shall be deemed received (i) One (or __) Day(s) After the email was sent PROVIDED THAT (iii) A Copy of the Notice is sent, on the same date, to e-mail #2, the text number, or fax number specified below.

The form defines “notice” as “any notice, disclosure, demand, document, information or other item that Buyer or Seller may or is required to give the other pursuant to the Agreement.” The form also contains spaces for emails, fax numbers, and numbers at which text messages can be received. This form should be attached to the Agreement that buyer and seller enter into, and serves to establish delivery dates when the other side to a transaction is non-responsive.

6 & 7)  Representative Capacity Signature Disclosure (For Buyer Representatives) (RCSD-B) & Representative Capacity Signature Disclosure (For Seller Representatives) (RCSD-S) The RCSD-B and RCSD-S will be replacing the Representative Capacity Signature Disclosure form, which will be discontinued officially in December. As their titles indicate, the forms are specific to buyers and sellers. The RCSD-B differs from the RCSD-S in that it does not include Estates, since rarely is an Estate a buyer.

8) Salesperson Owned Fictitious Business Name Agreement (SOFBN) Fictitious Business Names (FBNs) can only be owned by a real estate broker, not a salesperson. As such, the SOFBN was created to notify CalBRE that the salesperson retains ownership of the FBN. The form indicates that the broker and salesperson have entered into an Independent Contractor Agreement, and that the salesperson is authorized to apply for a FBN in the county in which he or she is doing business and deliver to CalBRE an application for use of the
SOFBN associated with the broker’s license number. The form further states:

“Salesperson, while maintaining ownership of the SOFBN, agrees to use the name only as permitted by Broker. At a minimum, Salesperson understands that California Real Estate Law requires that advertising and solicitation materials including business cards, print or electronic media, and “for sale” signs containing the SOFBN shall also include:

a. Broker’s name in a manner equally as prominent as the SOFBN, and Broker’s CalBRE license number AND
b. Salesperson’s name and CalBRE license number.”

The broker further agrees that he or she shall release any rights to the SOFBN upon termination of the Independent Contractor Agreement with the salesperson, and will remove the SOFBN from the broker’s CalBRE license number.

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As noted above, C.A.R. will also be releasing numerous revised forms in mid-December. A subsequent Courtside Newsletter will touch upon those. In the meantime, should you have any questions or concerns regarding these forms, we encourage you seek qualified counsel—either through an attorney or your local REALTOR® Association—for answers.


September 2015: California Legislature Enacts Further Clarification as to the Use of Fictitious Business & New Continuing Education Requirement for Real Estate Brokers

BY: JOHN V. GIARDINELLI, ATTORNEY AT LAW
CASEY MCINTOSH, PARALEGAL

California Legislature Enacts Further Clarification as to the Use of Fictitious Business

The California State Legislature has recently clarified that true Team Names are not fictitious business names (FBNs) for purposes of submitting a certified copy of the fictitious business name statement along with an application to the California Bureau of Real Estate (CalBRE) and revised the definition of the “responsible broker’s identity.” With “Team Names” becoming a more complicated feature in the past few years, the Legislature agreed revisions to the way FBNs were being used in real estate were not only appropriate but also an urgent necessity. The Legislation was backed by both the CalBRE and C.A.R and became effective immediately on July 16, 2015 upon being signed into law.

It is important to note that the above requirement only applies if the Team Name meets all the criteria of a Team Name as defined in SB 146 (i.e. name used by two or more real estate licensees, name incudes a surname of one of the licensees in conjunction with the words “Team,” “Group,” or “Associates,” and does not include any terms such as broker or brokerage as to lead the public to believe the team is a brokerage or offering real estate brokerage services). All other names being used will more than likely be considered a FBN and a real estate licensee must file a certified copy of the FBN statement with his/her application for a license.

If a real estate licensee wants to use a FBN, the licensee must comply with Business and Professions Code Section 10159.5, which requires the licensee to file a certified copy of his/her FBN, along with the application signed by the responsible broker, to the CalBRE. Business and Professions Code Section 10159.5 also requires the FBN statement to be filed with the county clerk in the county or counties where the FBN will be used and requires the statement be filed with the permission of a responsible broker, a.k.a. “the broker responsible for the exercise of control and supervision of salespersons…” (Business and Professions Code Section 10159.7(a)(4)). Thereafter, a certified copy of the statement will be delivered to the CalBRE with a real estate license application signed by the responsible broker, requesting CalBRE’s approval to use a county-approved FBN. The FBN will be identified with the responsible broker’s name and license number, and will be subject to the control of the responsible broker.

This law also revised the definition of “responsible broker’s identity.” Business and Professions Code Section 10159.7(a)(1) now defines the “responsible broker’s identity” to mean “a name and the associated license identification number under which the responsible broker is currently licensed by the bureau and conducts business in general or is a substantial division of the real estate firm.” This does not include a FBN or a Team Name.

It is important to remember that Senate Bill 146 addresses the advertising and solicitation materials used by the salesperson in marketing with a FBN or a Team Name. When using a FBN, all marketing materials “including business cards, print or electronic media and ‘for sale’ signage, shall include the responsible broker’s identity in a manner equally as prominent as the fictitious business name,” as well as the name and license number of the salesperson who is using the fictitious business name. Furthermore, advertising and solicitation materials cannot contain terms that imply the existence of an entity that is independent of the responsible broker. When using a Team Name, all marketing materials “including business cards, print or electronic media and ‘for sale’ signage, shall include the Team Name, the name and license number of at least one of the licensed members of the team, as well as the responsible broker’s identity.

Should you have any questions about this new law or your compliance with it, please contact your local REALTOR® association or qualified legal counsel for advice.

New Continuing Education Requirement for Real Estate Brokers

BY: JOHN V. GIARDINELLI, ATTORNEY AT LAW
CASEY MCINTOSH, PARALEGAL

In mid-July, Governor Brown signed Assembly Bill 345 into law, thus enacting a new requirement for real estate brokers’ continuing education. Current law requires a real estate broker to renew his or her license every four years. Pursuant to Section 10170.5 of the Business & Professions Code, within that 4-year period, the broker must complete 45 clock hours of education, including:

  • A 3-hour course in ethics, professional conduct, and legal aspects of real estate, which shall include, but not be limited to, relevant legislation, regulations, articles, reports, studies, court decisions, treatises, and information of current interest.
  • A 3-hour course in agency relationships and duties in a real estate brokerage practice, including instruction in the disclosures to be made and the confidences to be kept in the various agency relationships between licensees and the parties to real estate transactions.
  • A 3-hour course in trust fund accounting and handling.
  • A 3-hour course in fair housing.
  • A 3-hour course in risk management that shall include, but need not be limited to, principles, practices, and procedures calculated to avoid errors and omissions in the practice of real estate licensed activities.
  • Not less than 18 hours of courses or programs related to consumer protection, including but not limited to: forms of real estate financing…, land use regulation and control, pertinent consumer disclosures, agency relationships, capital formation for real estate development, fair practices in real estate, appraisal and valuation techniques, landlord-tenant relationships, energy conservation, environmental regulation and consideration, taxation as it relates to consumer decisions in real estate transactions, probate and similar disposition of real property, governmental programs such as revenue bond activities, redevelopment, and related programs, business opportunities, mineral, oil, and gas conveyancing, and California law that relates to managing community associations that own, operate, and maintain property within common interest developments, including, but not limited to, management, maintenance, and financial matters addressed in the Davis-Stirling Common Interest Development Act.

With the new law, effective January 1, 2016, brokers will now be required to complete a 3-hour course “in the management of real estate offices and supervision of real estate licensed activities.”

The California Association of REALTORS® backed this bill, stating, “Since the California Bureau of Real Estate can hold a manager accountable for failure to supervise, C.A.R. believes it important that a real estate broker understand how to properly manage real estate offices, salespersons, and broker associates, in order to minimize risk for all parties involved.”

Should you have any questions or concerns about this continuing education requirement, or where to find courses once the law goes into effect, contact your local REALTOR® association or qualified legal counsel for advice.

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August 2015: SCOTUS Rules on Sign Codes: What Does this Mean for REALTORS®?

BY: KELLY A. NEAVEL, ATTORNEY AT LAW
CASEY MCINTOSH, PARALEGAL

In mid-June, the Supreme Court of the United States (“SCOTUS”) issued a ruling on sign codes that could affect how real estate practitioners conduct business throughout the country. In Reed v. Town of Gilbert, Ariz. the Supreme Court addressed the question of whether a Sign Code with exemptions based on the type of sign violated the First Amendment right to freedom of speech.

GILBERT, ARIZONA LAND DEVELOPMENT CODE

Like many cities and towns across the United States, the town of Gilbert, Arizona (hereinafter “Town”) adopted a comprehensive Land Development Code (“Sign Code” or “Code”) to assist with the governance of the Town. This Code identifies categories of signs, subjecting the categories to different restrictions. It also prohibits the display of outdoor signs without a permit, but exempts 23 categories of signs from that requirement. Of particular interest to the court were three different exemptions to the outdoor Sign Code, and how the Town treated them:

  • Ideological Signs: includes any “sign communicating a message or idea for noncommercial purposes that is not a … Political Sign…” Ideological signs are treated the most favorably of the three categories scrutinized by the court. These signs are allowed to be up to 20 square feet and can be placed in all zoning districts, without time limits.
  • Political Signs: includes any “temporary sign designed to influence the outcome of an election called by a public body.” The Sign Code allows political signs to be up to 16 square feet on residential property and 32 square feet on non-residential property, undeveloped municipal property, and rights-of-way. The signs are also subject to time limitations, and may be displayed up to 60 days prior to a primary election and 15 days following a general election.
  • Temporary Directional Signs Relating to a Qualifying Event: includes any “temporary sign intended to direct pedestrians, motorists, and other passerbys to a ‘qualifying event.’” A qualifying event is defined as any “assembly, gathering, activity, or meeting sponsored, arranged or promoted by a religious, charitable, community service, educational, or other similar non-profit organization.” These signs have the least favorable treatment of the three the Court focused on. They can be no larger than 6 square feet, and no more than four signs can be placed on a single property at any time. The signs may only be displayed for no more than 12 hours prior to an event, and must be removed no more than 1 hour following the event.

BACKGROUND

In the instant action, Clyde Reed (“Reed”) is the pastor at Good News Community Church (“Church”), a small, cash-strapped entity that does not have a specific location in which to hold services. Instead, services are held in or around town, mainly on Sundays. Temporary signs, such as those temporary directional signs described above, are posted to inform the public of that week’s services time and location. The signs would be posted the Saturday prior and removed midday Sunday.

As a result of this practice, the Church was cited twice by the Town’s Sign Code compliance manager. The first citation indicated that the Church exceeded the time limits to post the signs, and the second included that same violation, as well as the fact that the date of the service was not listed on the sign. Reed attempted to reach a resolution with the Sign Code Compliance Department, but was told that there would be “no leniency under the code.”

Reed thereafter filed a suit in U.S. District Court, alleging that the Sign Code abridged freedom of speech in violation of the First and Fourteenth Amendments. Both the District Court and, later, the Court of Appeals disagreed. The courts held that the Sign Code’s provision regulating temporary directional signs did not regulate speech on the basis of content. Both courts found that the Sign Code’s categories were content neutral, and the distinctions within the Code were “based on objective factors relevant to [the Town’s exemptions from permit requirements.]” Those factors did not take into consideration the substance of the signs, and the Town’s “interests in regulat[ing] temporary signs are unrelated to the content of the sign.” In light of this content-neutral decision, the Courts applied a lower level of scrutiny and concluded that the law did not violate the First Amendment.

Following this unfavorable outcome, Reed requested that SCOTUS review the matter, and was granted certiorari.

SCOTUS REVIEW

Under the First Amendment a “municipal government vested with state authority, ‘has no power to restrict expression because of its message, its ideas, its subject matter, or its content.’” As such, content-based laws, e.g. those that target speech based on content, are “presumptively unconstitutional and may be justified only if the government proves that they are narrowly tailored to serve compelling state interests.” In the instant action, the Court was tasked to determine whether the Town’s Sign Code was content based. According to the Court, “Government regulation of speech is content based if a law applies to particular speech because of the topic discussed or the idea or message expressed.” For Gilbert, Arizona, the Court found that the Sign Code is content based on its face since the restrictions that apply to “any given sign are dependent entirely on the communicative content of the sign.” Therefore, the Court must subject the Code to strict scrutiny, regardless of the Town’s benign motive for the restrictions.

This scrutiny took place in the second half of the Court’s review. The Town was required to prove that the Code’s restrictions further a “compelling interest” and are “narrowly tailored to achieve that interest.” Essentially, the town had to prove it had a good reason for creating different sign restrictions based on the content of the signs, and that the restrictions were narrowly tailored to achieve that end. However, the Town was unable to prove it had an acceptable reason for the restrictions. According to the Court, “preserving the Town’s aesthetic appeal and traffic safety” are not good reasons, especially when other types of signs are allowed that cause that same issue/concern. Furthermore, there are ample content-neutral options available to the Town to resolve issues with aesthetics and safety, such as “size, building materials, lighting, moving parts, and portability.”
Ultimately, SCOTUS found that the “Sign Code, a paradigmatic example of content-based discrimination, singles out specific subject matter for differential treatment, even if it does not target viewpoints within that subject matter.” The Sign Code is therefore unconstitutional, and the decision of the Court of Appeals was reversed by the Supreme Court.

IMPACT ON REALTORS®

Although the Supreme Court justices unanimously concurred with the decision, it has nonetheless come under fire. Many, including the Supreme Court justices, are questioning whether it will prevent governments from enacting efficient sign laws. Content-based signs may include everything from temporary directional signs to signs advertising free coffee or places of historical importance. In a separate albeit concurring opinion, Justices Kagan, Ginsburg and Breyer state, “Given the Court’s analysis, many [content-based] sign ordinances … are now in jeopardy…” and the “Court may soon find itself a veritable Supreme Board of Sign Review.” While Justices Alito, Kennedy and Sotomayor provided examples of non-content based sign regulations in their concurring opinion, the issue remains that all signs that could be content-based will suffer strict scrutiny before the court. This could, in turn, create a much more litigious environment for local municipalities.

This could prove an issue for real estate professionals as well, considering the use of signs within the profession. “For Sale/Rent” and “Open House” signs could be subject to scrutiny if they are impacted by content-based ordinances such as those seen in Reed v. Town of Gilbert, Ariz. Many cities currently have sign laws that could affect how a REALTOR® conducts business. Real estate professionals should keep this case in mind, should any issues arise.

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July 2015: Recent SCOTUS Ruling on the FHA & How It Affects REALTORS®

BY: RAMENEH K. TORRES, ATTORNEY AT LAW
CASEY MCINTOSH, PARALEGAL

“Disparate impact” is a phrase sometimes heard but oftentimes not well understood. However, in late June, the Supreme Court of the United States (SCOTUS) brought the issue front and center in narrow ruling that held that disparate-impact claims are cognizable under the federal Fair Housing Act (FHA). The ruling on Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., et al. presents a huge victory for the Court, civil rights groups, and the struggle towards equality in the United States.

Although it may seem implausible, this decision does affect real estate practitioners, and mainly those working as property managers. It is important to pay extra attention to the detail when leasing or selling a home, to ensure that your practices or those of your clients are not adversely harming any specific group of people. With any luck, this will not be a major area of concern for most real estate agents, brokers, and property managers.
What is Disparate Impact?

According to the National Fair Housing Alliance, disparate impact is a doctrine under the FHA that states that any policy, rule or practice could be considered discriminatory if it has a disproportionate adverse impact against any group based on race, national origin, color, religion, sex, familial status, or disability when there is no legitimate, non-discriminatory business need for the policy, rule or practice. The policy, rule or practice (hereinafter “policy”) can appear innocuous enough, but if it has an adverse affect on a protected class (as described above), it can be considered disparate impact. Examples of disparate impact include:

  • A minimum height requirement for a specific job: In 1974, the New Bedford police department had a requirement that “police officers” were required to be at least 5’6” tall. This had a disproportionately adverse impact on women, since they failed to meet the height requirement more often than men.
  • An education requirement: When hiring laborers, an employer required applicants to have a high school diploma. At the time, this had an adverse impact people of color applying for the job, more so than whites

In a lawsuit, once a policy has been proven to have a disproportionately adverse effect on people of a protected class, the burden shifts to the employer or group instituting that policy to prove that there is a legitimate reason for the policy. If, as seen in the examples above, there is no legitimate, non-discriminatory reason for the policy, it can be considered disparate impact.

Up until the recent SCOTUS ruling, there has been a debate as to whether those filing a disparate-impact claim must prove that the intent of the policy was to discriminate. Civil rights groups have continuously fought the idea that the FHA only prohibits intentional discrimination, while the Supreme Court (as recently as 2011 and 2012) has continuously ruled otherwise, maintaining the precedent that intent must exist.

Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., et al.

In the instant action, the question brought before the Court was whether, under a proper interpretation of the FHA, housing decisions with a disparate impact are prohibited. According to the Court, a disparate-impact case differs from that of a disparate-treatment case in that, in a disparate-treatment case, a plaintiff must establish that the defendant had a discriminatory intent or motive. In a disparate-impact case, “a plaintiff…challenges practices that have a ‘disproportionately adverse effect on minorities’ and are otherwise unjustified by a legitimate rationale.”

In Texas, federal housing credits are distributed by the Texas Department of Housing and Community Affairs (“Department”). Developers can apply for tax credits, and their developments are scored under a point system set forth by the Texas Government Code. Inclusive Communities Project, Inc. (“ICP”) is a Texas-based non-profit that assists low-income families with obtaining affordable housing. In 2008, ICP brought a suit against the Department, alleging that the Department had caused “continued segregated housing patterns by its disproportionate allocation of the tax credits, granting too many credits for housing in predominantly black inner-city areas and too few in predominantly white suburban neighborhoods.”

In its case, ICP relied on two pieces of statistical evidence to prove that a protect class was disproportionately adversely impacted by the Department’s distribution of tax credit.

  • “[F]rom 1999-2008, [the Department] approved tax credits for 49.7% of proposed non-elderly units in 0% to 9.9% Caucasian areas, but only approved 37.4% of proposed nonelderly units in 90% to 100% Caucasian areas.”
  • “92.29% of [low-income housing tax credit] units in the city of Dallas were located in census tracts with less than 50% Caucasian residents.”

The District Court held that the Department failed to prove that there were no less discriminatory alternatives to this practice, and therefore ruled in favor of ICP. The remedial order of the District Court required new selection criteria for tax credits, but did not contain explicit racial targets or quotas.

While the Department’s appeal was pending, the Secretary of Housing and Urban Development (HUD) issued a regulation interpreting the FHA to encompass disparate-impact liability. This regulation contains a burden-shifting framework in which:

  1. First, the plaintiff has the burden of proving that a challenged practice has or will predictably have a discriminatory effect.
  2. Thereafter, the defendant must show “that the challenged practice is necessary to achieve one or more substantial, legitimate, non-discriminatory interests.”
  3. Lastly, once the defendant has satisfied its burden, the “plaintiff may ‘prevail upon proving that the substantial, legitimate, nondiscriminatory interests supporting the challenged practice could be served by another practice that has a less discriminatory effect.’

In the Court of Appeals’ review of this case, it took into consideration this HUD regulation, and thereafter reversed and remanded the District Court’s decision, finding it improper to have place the burden on Defendant to prove there were no less discriminatory alternatives for allocating low income housing tax credits. The Department then filed a writ of certiorari with the Supreme Court on the question of whether disparate-impact claims can be brought under the FHA.

Title VIII of the Civil Rights Act of 1968 aka the Fair Housing Act

The opinion issued in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., et al. went into detail about the history of Title VIII of the Civil Rights Act of 1968, also known as the Fair Housing Act (FHA). SCOTUS found that the history of the FHA, adopted shortly after the assassination of Dr. Martin Luther King, Jr., was important in interpreting the disparate impact claim brought before it.
According to the Court, both §703(a)(2) of Title VII of the Civil Rights Act of 1964 and §4(a)(2) of the Age Discrimination in Employment Act of 1967 (ADEA) authorize disparate-impact claims. These two statutes preceded the FHA, and determined that “antidiscrimination laws should be construed to encompass disparate-impact claims when their text refers to the consequences of actions and not just to the mindset of actors, and where that interpretation is consistent with statutory purpose.” However, in order to protect employers in such instances where policy could seem to have an adverse effect on protected classes, the person or group bringing the disparate-impact claim must prove that there is “an available alternative … practice that has less disparate impact and serves the [entity’s] legitimate needs.”

With this in mind, the Court looked to the FHA, under which is it “unlawful to ‘refuse to sell or rent … or otherwise make unavailable or deny, a dwelling to a person because of race’ or other protected characteristic … or ‘to discriminate against any person in’ making certain real-estate transactions ‘because of race’ or other protected characteristic…” In accordance the two previously-enacted antidiscrimination statutes described above, it would seem that the language in all three statutes shift the emphasis “from an actor’s intent to the consequences of his actions.” Continuing with this train of thought, the Court opined that “recognition of disparate-impact claims is also consistent with the central purpose of the FHA, which… was enacted to eradicate discriminatory practices within” the nation’s real estate sector. Of course, a disparate impact claim should be looked at by a court with fine-toothed comb. Disparate-impact liability should not be construed so broadly that racial considerations become a part of every housing decision.

SCOTUS’ Decision & its Affect on REALTORS®

In a 5-4 ruling, the Court held that disparate-impact claims are cognizable under the FHA. However, at the same time the Court limited disparate impact liability to those policies that pose “artificial, arbitrary, and unnecessary barriers.” According to the SCOTUS blog, such a qualifier could be the determining factor of the outcome of Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., et al. on remand.

It is important for all real estate professionals to ensure they are not acting in a discriminatory manner. This decision can and does affect real estate practitioners, and mainly those working as property managers. It is important to pay extra attention to the detail when leasing or selling a home, to ensure that your practices or those of your clients are not adversely harming any specific group of people. With any luck, this will not be a major area of concern for most real estate agents, brokers, and property managers. However, if there are any questions regarding a particular practice, or even how to deal with a client who might request something that could adversely affect a protected class, it is best to seek qualified counsel either in the form of an attorney or at your local REALTOR® association.

 

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June 2015: TRID May Impact Your Real Estate Transactions

TRID May Impact Your Real Estate Transactions

BY: RAMENEH K. TORRES, ATTORNEY AT LAW

The Consumer Financial Protection Bureau (“CFPB”) was tasked with integrating the TILA and RESPA to make TRID, which consolidates four existing disclosures into two forms:
Loan Estimate (formerly the initial Truth-in-Lending and Good Faith Estimate)
Closing Disclosure (formerly HUD-1 and Final Truth-in-Lending).

The TRID disclosures are designed to make the loan process more understandable for consumers, and the two disclosures have the same alphabetical breakdown and structure so that the forms can be cross-referenced for ease and simplicity. Furthermore, the forms now look similar to other forms. The main purpose behind the TRID integration is to help consumers shop for the best loan, guard against hikes in charges at closing, and understand future obligations. Communication between REALTORS® and vendors will be more important than ever, and agents will need to talk to loan officers to ensure that clients have smooth transactions.

The Application

Once a loan originator obtains six pieces of information from a
consumer, the application is considered to have been received.
The six pieces of information can be remembered using the
acronym ALIENS:

Address,
Loan amount,
Income,
Estimated value of property,
Borrower’s Name, and,
Social Security Number.

These six pieces of information do not need to be obtained in a
formal manner. They can be sent in an email, text message, or
scrawled on a cocktail napkin. This is important to note because
the lender must send a Loan Estimate within 3 business days of
receiving the application.

Loan Estimate

The Loan Estimate (“LE”) replaces the Good Faith Estimate and the Early Truth-in-Lending. The LE must be delivered, or placed in the mail, by the lender or mortgage broker no later than the third (3rd) business day after receiving the consumer’s application. Ultimately, the actual lender is responsible for the LE, but the Mortgage Broker may provide the LE. Lenders and Mortgage Brokers may not charge any upfront fees for the LE, with the exception of a reasonable fee for a credit report.

The benefits of the Loan Estimate are that there are clearly defined terms and lock status. New features on the LE also include a breakdown of what the interest will be in five years, and the total interest percentage.

There is a seven (7) day mandatory waiting period after receiving the LE before the borrower can consummate the transaction. This waiting period may only be waived if the consumer has a bona fide personal financial emergency that necessitates consummating the transaction prior to the end of the seven-day period. While this will be determined on a case-by-case factual basis, the only examples that have been given by the CFPB of a bona fide personal financial emergency are the imminent sale of the consumer’s home at foreclosure, or imminent bankruptcy.

If the lender makes any mistakes on the LE that are harmful to the lender, the lender cannot change the LE to correct the mistakes. The terms on the LE can only be changed if there are changed circumstances—forgetting something or accidentally using the wrong terms are not considered changed
circumstances, and the lender will be responsible for any difference in the loan amount.

A consumer has ten (10) days to give their intent to proceed upon issuance of the LE. This is being referred to as the 10 day “shopping period,” where consumers have the option to shop lenders while still keeping their options open on any LE issued to them. The CFPB defines “days” as business days. For the LE, a business day considered to be any day in which the creditor is open to the public for carrying out substantially all of its business functions. It will be important for REALTORS® to be aware of the days lenders are open for business, and if certain lenders differ in the days they are open.
If a new LE is needed, (e.g. for a new property), the waiting period starts over. If there is a “changed circumstance” and a LE needs to be revised, the revised LE must be given a minimum of four (4) days before closing. There are several items that cannot increase once locked in on the LE, including: creditor’s or broker’s charges for its own services; charges for services provided by an affiliate; or charges where the consumer is not permitted to shop.

There is a signature line on the LE but the borrower does not have to sign the LE. In fact, even if the borrower does sign the LE it does not mean that they have given their intent to proceed. The intent to proceed can be indicated in any manner; however lenders should get it in writing to be safe. No one can impose a fee, with the exception of a fee for a credit report, on the borrower until the borrower has both: 1) received the LE and 2) given their intent to proceed.

Closing Disclosure

The Closing Disclosure (“CD”) replaces the HUD-1 and the Final Truth-in-Lending. The CD must be given three (3) business days prior to signing, or “consummation,” of the transaction. The transaction is consummated when the consumer becomes contractually obligated to the creditor. Once again, the three-day period may only be waived if there is a bona fide personal financial emergency and there is a written statement by the consumer. For the CD, business days are defined as Monday – Saturday, not including certain specific Federal Holidays.

REALTORS® should be aware of which holidays are excluded so they can stay aware of their timelines in the escrow process, and should also take note of how “business days” are defined differently than they are for the LE.

If there are any changes to the CD the consumer must be given a new CD one (1) day prior to signing. For example, if a builder suddenly allows upgrades that change the purchase price, a new CD will be needed, and an additional one (1) day will be added to the close of escrow. There are limited changes that do require a new three-day waiting period, which are: changes above APR tolerance; change to loan product; and, the addition of prepayment penalty.

The real estate commissions are much more prominently noted  on the new CD than they were on the HUD-1. There is also better tracking of the parties, as the lender, broker, listing agent, sales agent, and mortgage broker each have their license numbers, phone numbers and addresses listed on the CD.

Details that REALTORS® Should Know

  • Borrowers will get a “home loan toolkit” on purchase transactions so they know who or where they can go if they have an issue with their lending. Agents can prepare their buyers with a “Buyer Information Packet” available through CFPB.
  • Lenders must provide the LE and CD unless the loans are made by persons not considered creditors because they finance five or fewer mortgages per year (aka seller financed).
  • All documentation must go directly from the borrower to the lender, for control purposes.
  • Agents should give an extra 15 days of leeway on escrow, and be mindful to keep clients informed of the extra time that may be needed as all the kinks of the new process are rolled out.
    • Buyers should not expect to make any changes at closing and Sellers should not do anything that would require changes at closing.
  • Prior to receiving an intent to proceed, a lender cannot charge any fees to the borrower, with the exception of a reasonable fee for a credit report.
    • Lenders cannot take a borrower’s credit card number to store for future use or need, cannot take a postdated check, and an agent cannot pay a fee on behalf of a borrower.
  • Many lenders will now have an “approved providers” list for the Borrower’s choice of escrow.
    • Lenders have strict standards to uphold, and are ultimately responsible for everything on the CD. The lender cannot sign away this  responsibility.
  • A lender cannot require the borrower to submit information, such as the purchase agreement or other documentation, until after the borrower has received the LE.

The biggest area of concern and confusion in the implementation of TRID is regarding borrower pre-approval. Lenders cannot require any information from the borrower, which has many asking how a pre-approval will be done at all. If the information is needed to assess if they can qualify, but they cannot require the information, will any lender be willing to do a pre-approval? If you obtain all six items that are required for an application during the pre-approval period (ALIENS), a LE must be completed.

* * *

TRID applies to most consumer credit transactions secured by real property, excluding home equity lines of credit (HELOCs), reverse mortgages, or mortgages secured by a mobile home not attached to real property. Currently, the new disclosures must be provided by a creditor or mortgage broker that receives an application on or after August 1, 2015. The CFPB has proposed to delay the new TRID rules to start on October 3, 2015, and that date change is awaiting public comment before it can be finalized. If the implementation is August 1, or October 3, the deadlines and requirements will not change.

 


May 2015: California Association of REALTORS® Releases New & Revised Forms

BY: EDWARD J. ZORN, ATTORNEY AT LAW
CASEY MCINTOSH, PARALEGAL

The California Association of REALTORS® released four (4) new and six (6) revised forms on April 27, 2015.

New Forms
Buyer Amendment to Escrow Instructions (BAEI) | Seller Amendment to Escrow Instructions (SAEI)
The BAEI and SAEI were created by C.A.R. following the changes to the Residential Purchase Agreement that were implemented late last year. According to C.A.R., these two new forms satisfy the requirement of the “Department of Business Oversight, [a] government body with regulatory authority over independent escrow holders.” The SAEI and BAEI allow independent escrow holders to release a deposit in the absence of signed mutual instructions. The forms state,

“If either Party fails to execute mutual instructions to cancel, one Party may make a written demand to Escrow Holder for the deposit (C.A.R. Form BDRD or SDRD). Escrow Holder, upon receipt, shall promptly deliver notice of the demand to the other Party. If, within 10 Days After Escrow Holder’s notice, the other Party does not object to the demand, Escrow Holder shall disburse the deposit to the Party making the demand. If Escrow Holder complies with the preceding process, each Party shall be deemed to have released Escrow Holder from any and all claims or liability related to the disbursal of the deposit.”

Ultimately, these forms will allow escrow to release a deposit following the cancellation of the escrow instructions as set forth in the RPA.

Independent Contractor Agreement with Binding Arbitration Option (ICA-BA)
This agreement between broker and associate-licensee includes a binding arbitration clause, to be enacted in the event that the broker and associate-licensee cannot resolve any disputes that may arise through mediation. According to the form,

“Such claims would include, without limitation, any concerning the initiation of the work relationship, the pay or other compensation for the work performed, breach of contract, expenses, any claims by Broker or Associate-Licensee for violations of applicable law or regulations, the decision by Broker or Associate-Licensee to end the assignment, any claims for conversion and/or breach of fiduciary duty, as well as any claims that arise from or relate to Broker’s classification of Associate-Licensee as an independent contractor rather than an employee.”

The broker will be responsible for all costs of the arbitration, which will be conducted through JAMS at an office closest to the county of the broker’s office with which the associate-licensee was associated. However, each party shall pay their own attorneys’ fees and costs.

Independent Contractor Agreement with Mediation (ICA-NA)
This agreement between broker and associate-licensee contains a clause that makes mediation the mandatory first step to resolve disputes. Unlike the ICA-BA, described above, if disputes are not resolved through mediation, the broker and associate-licensee may submit the matter to binding arbitration, but it is not required.

Revised Forms
C.A.R. also made minor modifications to the below forms, “such as updates to code references and changing reference to BRE to CalBRE, to satisfy CalBRE requirements”

  • Options and Upgrades Addendum to New Construction Residential Purchase Agreement (NCA)
  • New Construction Property Disclosure Statement (NCDS)
  • Common Interest Subdivision Supplemental Escrow Instructions (NCEI)
  • New Construction Notice of Completion and Notice to Close Escrow (NCNC)
  • New Construction Residential Purchase Agreement and Joint Escrow Instructions (NCPA)
  • New Construction Addendum to RPA-CA (NCRPA)

Silent Revisions to the Residential Purchase Agreement
According to C.A.R., there will also be numerous “silent revisions” to the Residential Purchase Agreement, including:

  • Paragraph 1B (Property Identification) is being reformatted to eliminate duplicate language.
  • Language is being added to Paragraph 3C (All Cash Offer) to make explicit that the sale is not contingent upon buyer obtaining a loan.
  • Paragraph 7D(6) (Allocation of Costs—Other Costs) is being revised to indicate the buyer has the responsibility to pay for any requested HOA Certification fees.
  • Language in paragraph 10A(4) (Statutory and Other Disclosures) is being modified to clarify that if the seller will not be providing a Transfer Disclosure Statement (TDS) or a Seller Property Questionnaire (SPQ), then the seller is obligated to provide a Supplemental Contractual and Statutory Disclosure (SSD).
  • Paragraph 14C (Time Periods; Removal of Contingencies; Cancellation Rights—Seller Right to Cancel) will be modified to clarify that if the buyer does not assume or accept leased items, the seller may give the buyer a Notice to Buyer to Perform (NBP).
  • The Exclusion from Mediation and Arbitration Paragraph (22C) is being modified to specifically mention that filing a lawsuit to preserve a statute of limitation is allowed without violating the mediation or arbitration requirement.
  • Language is being added to the bottom of page 10 to specifically allow the buyer to acknowledge that the last page is part of the agreement.

As usual, should you have any questions regarding new, revised, or even old forms, contact your local REALTOR® association or qualified legal counsel.

 

May 2015 Newsletter_New Forms


February 2015: Overheard at the C.A.R. Winter Business Meetings

Last month, the team at The Giardinelli Law Group had the privilege of attending the California Association of REALTORS® Winter Business Meetings in Indian Wells. This month’s Courtside Newsletter will highlight some of the information gathered at that event.

Click here to download the article.

California Bureau of Real Estate Forum

Real Estate Fraud:

  • CalBRE is currently seeing 7 kinds of fraud:
    1. Advance Fee Scams (still)
    2. Unlicensed Pre-Rental Scams
    3. Online Rental Fraud-hijacking from rental listings (taking up-front money for deposits)
    4. Unlicensed Real Property Management (without broker’s involvement or knowledge)
    5. Timeshare Advance Fee Scams
    6. Self-Dealing with Property Management Funds & Other
      • Seeing shortages, conversions and trust fund co-mingling
    7. Deep Fraud (stealing properties, putting liens on properties-usually on second homes)
  • CalBRE is also seeing a lot of scammers using real estate agents’ license numbers and names
    • What an Agent Can do to Prevent This:
      • Monitor on-line profiles
      • If an agent sees something that is not theirs, the agent should contact the police, contact his/her internet provider to remove, as well as contact the FTC and the FBI.

Audits:

  • 5 Types of CalBRE Audits:
    • Investigative – New (55%)
    • Investigative – Follow up
    • Investigative – Other
    • Routine (45% )
    • Routine – Follow up
  • The Audit Areas:
    • Property Management (75%)
    • Mortgage Loans (11%)
    • Broker Owned Escrows (5%)
    • Other (9%)
  • Greatest Areas for Audits:
    • Private Money/Hard Money
    • Property Management
    • Broker Owned Escrow
  • Findings of Audits:
    • Major Violations (Accusations) (33%)
    • Corrective Action Letter (31%)
    • Cite & Fine (2%)
    • No Violations (16%)
    • Minor Violations (19%)
      • 45% of Audits find Trust Fund Violations
      • $6.5 million in shortages in 2014

Broker Supervision:

  • Considerations Auditors Look For:
    • Does Broker have a Policies and Procedures Manual?
      • P&P Manual depends on size of brokerage
    • Is the Broker Monitoring Compliance of its Policies and Procedures?
    • Does the Broker have Training Program for Salespersons?
    • Are the Client Files Secure?
      • Broker and Agents must protect private information
      • Civil Code § 1798.84-outlines the proper way to dispose of records (shredding, modifying, erasing)
        • How records are disposed is becoming a growing problem
    • Does the Broker have a Trust Account and Does it Reconcile?

Professional Standards

Potential New Code of Ethics Training Requirements:

  • It was reported that the National Association of REALTORS® Presidential Committee has recommended changing the four-year requirement for Code of Ethics training for every REALTOR® to training every two years.
    • The goal would be to start the program in 2016 in an effort to enhance professionalism.

REALTOR® Code of Excellence:

  • The Presidential Committee is also considering the implementation of a REALTOR® Code of Excellence, which would develop a set of goals for high-end REALTORS® to target.
    • It would be different than the Code of Ethics since it would be voluntary compliance only.

Changes to the ethics complaint process:

  • Shorter time frames
  • Development of a written policy where the Association of REALTORS® (AORs) can adopt more aggressive time frames
  • Improvement of the processes under which continuances are granted.
  • Upgrade of the remote testimony policies

NAR Code of Ethics Core Standards.

  • Effective 2016, AORs will track compliance.
  • After being found in violation of a publishable offense (reprimands, fines, suspension, and expulsion) the disciplined member must provide a photo to C.A.R. and the local Association within 10 calendar days from when the local association’s Board of Directors adopts the discipline recommendation.
    • Failure to provide the photo and authorization within 10 days will result in suspension of membership until the photo and authorization are provided.
    • All AORs in California must submit the photos and discipline for publication by C.A.R. or face sanctions in the C.A.R. bylaws.

Member Legal Services

New California Laws

  • Record Retention (Effective 1/1/15): Brokers and agents do not need to keep texts, tweets, etc. Correspondence and emails must be kept for three years, including those related to negotiations.
  • Team Names and Fictitious Business Names (Effective 1/1/15): It is okay to market as a team; the team must be at least two members. The marketing must include word “team” and no reference to the word “broker.” It must also include the surname of one of the agents, plus the BRE number, and name of the brokerage. The team must file a FBN with the County, which salespersons can obtain with written permission of broker (BRE Form 247).
  • Homeowners Associations and Delivery of Documents (Effective 1/1/15): There are now two separate forms—mandatory vs. non-mandatory reports, which indicate how much is being charged for mandatory reports and must give estimates. The seller can’t charge the buyer for cost of mandatory reports. Per paragraph 10F of the Residential Purchase Agreement, the seller may put money into escrow to pay HOA costs or have seller pay directly to HOA. The seller can notify the HOA what they already have, and therefore cannot get charged.
  • Email addresses collection by CalBRE: AB 2540, Business and Professional Code Sections 10150, 10151, 10162 and 10165; effective 1/1/15: CalBRE now requires email address from licensees.
  • Electronic Communications (Effective 1/1/15): A landlord and/or tenant may use electronic communications for the security deposit, inspection requests, and to sign leases. However, they cannot electronically sign a notice of how much is taken out from a security deposit. This notice must still be mailed or personally delivered.
  • Anti-Bullying Training (Effective 1/1/15): Companies with 50+ employees must have training every two years consisting of a two hour class. The class will include sexual harassment and anti-bullying training. Agents are considered as employees for anti-bullying purposes.
  • FHA Anti-Flipping Rule: Unless the property is a government REO or disaster, you must own a house for at least 90 days before reselling (aka flipping) it to a new buyer at a higher price using FHA financing.
  • Eminent Domain: FHA cannot participate in mortgages that are obtained via eminent domain.
  • FHA Signatures: Lenders can accept e-signatures except on promissory notes.

Forms Update

February 2015 Forms Release

  • Independent Contractor Agreement
    • New dispute resolution paragraph—initially this was only required by the agent. Parties must attempt to resolve disputes through mediation. In a commission dispute, if both parties agree, they will use an Association program. If they do not agree, they will use binding arbitration through JAMS and the broker will pay all costs for the arbitration. Indemnity disputes do not fall into this category. Furthermore, if there is a class action waiver, agents can be required to sign a new agreement.