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


Supra Maintenance Notification – November 24th

Dear Valued Customer,

Today, Tuesday November 24th starting at 5:00pm PDT and ending at 9:00pm PDT, Supra will be conducting routine maintenance at our data center.

How will Updates be Available?

What will NOT be Working?

  • SupraNET
  • SupraWEB (only available for update codes)
  • KIM Voice (only available for update codes)
  • Automated Phone Payments (IVR system)
  • ActiveKEY Automatic Updates
  • DisplayKEY eSYNCs
  • eKEY Syncs and Wireless Updating

What WILL be Working?

  • SupraWEB (update codes only)
  • KIM Voice (update codes only)

Thank you,
Supra Support Team


SentriLock Automated Phone System

This message is to notify you that SentriLock’s automated phone system will be unavailable tonight Monday, November 23rd starting at 12:00 am EST for scheduled maintenance.  The automated phone system will be available again at 6:00 am EST on Tuesday morning.  We apologize for any inconveniences experienced during this time.

Thank You,
Sentrilock Support


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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Supra Maintenance Notification – August 29th

Dear Valued Customer,

On Saturday, August 29th starting at 5:00pm PDT and ending at 9:00pm PDT, Supra will be conducting routine maintenance at our data center.

How will Updates be Available?

What will NOT be Working?

  • SupraNET
  • SupraWEB (only available for update codes)
  • KIM Voice (only available for update codes)
  • Automated Phone Payments (IVR system)
  • ActiveKEY Automatic Updates
  • DisplayKEY eSYNCs
  • eKEY Syncs and Wireless Updating

What WILL be Working?

  • SupraWEB (update codes only)
  • KIM Voice (update codes only)

Thank you,

Supra Support Team


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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Supra Maintenance Notification – August 9th

Dear Valued Customer,

 

On Sunday, August 9th starting at 5:00am PDT and ending at 9:00am PDT, Supra will be conducting routine maintenance at our data center.

 

How will Updates be Available?

 

What will NOT be Working?

  • Key assignment/change/unassignment in SupraNET
  • Processing of payments in SupraWEB and SupraNET
  • Automated Phone Payments (IVR system)

 

What WILL be Working?

  • SupraNET (except key assignment/change/unassignment and payments)
  • SupraWEB (except payments)
  • KIM Voice
  • ActiveKEY Automatic Updates
  • DisplayKEY eSYNCs
  • eKEY Syncs and Wireless Updating

 

Thank you,

Supra Support Team