This month, The Giardinelli Law Group, APC summarizes the recently released new and updated C.A.R. Forms. To read the most recent Courtside Newsletter, click here now. You can also find copies of previous Courtside Newsletters under the “NEWS/BLOGS” tab of THE GIARDINELLI GROUP, APC website: www.glawgroupapc.com
WHAT THESE NEW LAWS MEAN FOR PRACTITIONERS
BY: CASEY MCINTOSH, PARALEGAL
The current session of the California State Legislature recently passed a number of Bills that will affect REALTORS®, real estate agents, and their clients in numerous ways. As these new laws will come into effect in 2012, it is important to be informed now in order to make implementation as easy as possible. The following are simply a few of the new laws and how they will pertain to real estate practitioners when they become effective.
Senate Bill 510: Branch Offices
This piece of legislature will become effective July 1, 2012 and will amend Section 10164 of the Business and Professions Code as it applies to the management of branch offices. Pursuant to existing law, a real estate broker is required to procure a separate license for each branch office maintained by the broker. SB 510 will authorize an employing broker to appoint a branch manager, pursuant to a written contract, and delegate responsibility to oversee and supervise operations and activities of that branch, as specified in the employment contract. The employing broker will also be required to send a written notice to the Department of Real Estate identifying the appointed manager and, should the broker-manager relationship be changed or terminated, the broker will be required to notify the Commissioner of those changes as well. SB 510 also outlines that the appointed manager must have at least two years of full-time real estate experience in the five years prior to appointment, and must not hold a restricted license or be subject to debarment. The Commissioner is authorized to suspend or suspend revoke the license of the appointed licensee for failure to properly oversee and supervise operations.
What This Means for Real Estate Practitioners
This Bill will be of interest to employing/designating brokers in that they now must notify the Department of Real Estate of their designations. However, it is also important to note the higher standard to which the appointed branch manager will be held. SB 510 will create accountability that will extend beyond the employing broker and to the manager of the branch. It is anticipated that Regulations will follow to detail the criteria for this statute.
Senate Bull 53: Escrow Transactions
As of now, real estate brokers engaging in certain escrow activities are required to make certain disclosures and recordings regarding those activities. Beginning on July 1, 2012, Business and Professions Code Section 10141.6, et seq., will be amended regarding real estate brokers who, pursuant to the exemption from the Escrow Law contained in Section 17006 of the Financial Code, engage in escrow activities for five or more transactions in a calendar year or whose escrow activities equal or exceed one million dollars in a calendar year. Within 60 days of the completion of the calendar year, those brokers subject to this section will be required to file a report with the Department of Real Estate documenting the number of escrows conducted and the dollar volume escrow was during the calendar year in which the threshold was met. Those brokers who fail to submit the required documentation will be assessed per diem penalties that will continue to increase until the Department receives the report. Further, if those penalties are not paid, the Commissioner may suspend or revoke the license of the offending broker.
What This Means for Real Estate Practitioners
SB 53 is important as it applies to brokers who may find themselves reaching the statutory limits outlined in B&P Section 10141.6, et seq. It is essential to keep track of any amendments in legislation that may change the way a real estate practitioner conducts business. SB 53 is a bill that goes on to amend other sections of the Business and Professions Code with regards to the Real Estate Law and will thereby interest agents and brokers alike. It can be found in its entirety at www.leginfo.ca.gov.
Senate Bill 837: Changes to Transfer Disclosure Statement
Existing law requires that, “on or before January 1, 2017, a single-family residential property built on or before January 1, 1994, be equipped with water-conserving features…” Such features include low-flow toilets, showerheads, and faucets (pursuant to Civil Code § 1101.3). Beginning January 1, 2012, SB 837 will make amendments to the Transfer Disclosure Statement (TDS) to disclose whether the property is equipped with these water-conserving plumbing features. (CAR will publish a new TDS form in November, 2011 that will contain this disclosure.)
What This Means for Real Estate Practioners
The amendment of Civil Code Section 1102.6 to include the disclosure of water-conserving features is one more item for real estate practitioners to look out for when assisting their clients with the TDS. Whether filling out the form or reviewing it, it is important to note whether these items are checked, so your client either knows what they need to do to the property in the future (as buyers), or, if they are already installed, what is increasing the value of the home (for sellers).
Senate Bill 4: Changes to Notice of Sale
Current law requires lenders to file Notices of Default in the case of nonjudicial foreclosure prior to enforcing the power of sale as a result of a default on an obligation secured by real property. Further, a Notice of Sale is to be given and recorded prior to exercising the power of sale. Effective April 1, 2012, SB 4 will now require additional language on the Notice of Sale notifying potential bidders of the risks and liabilities of bidding at the auction, as well as where they can find additional information regarding these risks. The Notice of Sale will also contain language for the property owner regarding how to obtain information about sale dates and postponements. This information is required to be provided by any means that provides continuous access.
What This Means for Real Estate Practitioners.
The changes in the Notice of Sale do not necessarily affect the salesperson, broker or their business directly, but keeping up with the changes will also help you to keep up with current trends in real estate and potentially the market.
These four bills are not the only new legislature that may affect a REALTOR®, real estate agent, or his or her client. As was aforementioned, it is important to keep track of the new laws and changes to existing laws—even those that do not seem pertinent at this exact moment. As an agent or broker, it is essential to be as informed and well-rounded as possible. Keeping up-to-date on the law will better ensure that this is the case.
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More in this newsletter, please download the PDF version for the full release.
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Branch Manager Liability – Governor Signs SB510
BY: SYLVIA J. SIMMONS, ATTORNEY AT LAW
THE GIARDINELLI LAW GROUP, APC
31594 RAILROAD CANYON ROAD
CANYON LAKE, CA
(951) 244-1856 WWW.GLAWGROUPAPC.COM
Existing Real Estate Law requires a real estate broker to obtain a license for each branch office and be liable for supervising the sales agents in that office. If the Department of Real Estate (DRE) requirements are not met, the designated broker risks license suspension or revocation. It is common practice for a broker to employ an office manager to supervise the operations of a branch office. Before passage of Senate Bill 510, a branch office manager did not share the designated broker’s responsibility for violating Real Estate Law if the real estate agents within the branch office were not properly supervised.
Under the new law, to be effective on July 1, 2012, the employing broker or corporate designated broker officer is permitted to contract with an eligible real estate broker or licensed salesperson (manager) to operate a branch office. The manager will be subject to disciplinary action for failure to properly supervise licensed activity of the sales agents and may have her/his license temporarily suspended or permanently revoked for failure to properly oversee and supervise operations of the branch office.
The new law includes the following requirements:
Senate Bill 510 was supported by the California Association of REALTORS®. The law was enacted to make office managers accountable if they fail to properly supervise their sales agents and is expected to ensure that consumers in California are afforded the best practices and highest quality of service from the real estate industry.
Designated brokers who have branch offices should review the qualifications of their branch managers and the provisions of their agreements and policies for compliance with the new requirements, and seek competent legal assistance to revise or create policies and employment contracts that meet the new legal requirements.
Biography
The Giardinelli Law Group, APC, Sylvia J. Simmons, Attorney.
Sylvia J Simmons is a business and transaction attorney at The Giardinelli Law Group, APC. Ms. Simmons has been providing legal services to businesses and REALTOR® Associations, brokers, residential, commercial and vacant land buyers and sellers for more than 14 years. The services she provides include business entity formation, corporate maintenance, buy-ins and buy-outs, succession planning, director disagreements, leases, contracts, employment policies and handbooks, hiring, discipline and termination. Ms. Simmons may be reached at[email protected] or (951) 244-1856.
The Giardinelli Law Group has released their September 2011 Courside Newsletter which is available for you to download. Below is one of the articles in this release.
Please click on the image below for the Courtside Newsletter Spet. 2011
MARS Enforcement Stayed Against Short Sale Listing Agents -REVISIONS TO C.A.R.’s MARS RULE Q&A
BY: SYLVIA J. SIMMONS
The California Association of REALTORS® revised its Q & A on the MARS rule in late August 2011 to reflect the announcement by the Federal Trade Commission (FTC) of its current position regarding enforcing the rule against REALTORS®. As of July 15, 2011, the FTC is generally not seeking enforcement of the Mortgage Assistance Relief Services (MARS) rules against REALTORS® who are simply trying to help their clients complete a short sale.
Short sale listing agents must meet three criteria:
Agents who do not meet these requirements must:
The following agents must comply with the MARS rules:
Of course, the FTC will enforce the MARS rules against any REALTOR® who engages in unfair or deceptive practices in the handling of a short sale. At this time, the Consumer Financial Protection Bureau (CFPB) is responsible for the rule-making functions of the FTC. The two agencies are required by federal law to coordinate their activities for consistent regulations. Therefore, the CFPB will follow the FTC policy, but the enforcement approach may change in the future.
For the complete MARS rule Q & A, contact the California Association of REALTORS®, or visit their website at www.car.org. For in-depth legal advice regarding the MARS rule or other real estate matters, feel free to contact The Giardinelli Law Group, APC.
By: J Niswonger, Riverside County Office
There is some good news for homeowners who have to sell their properties for less than they owe (known in the industry as short sales). The California Legislature has passed Senate Bill 458, which mortgage holders from seeking to recover additional money from the seller after approving a short sale. This month’s newsletter addresses the effects of Senate Bill 458 and the benefits to homeowners of this change to an existing statute.
Senate Bill 458 was signed by Governor Brown on July 11, 2011 and filed with the Secretary of State on July 15, 2011. The Bill modifies Code of Civil Procedure Section 580e and, by its terms, takes effect immediately. The most significant effect of this new law is that now any bank or other lender that holds a note secured by real property (i.e., a mortgage) may not seek to recover a deficiency on that note after a short sale. That is, lenders who approve a short sale are entitled to receive only the money received through the sale of the property and may not collect any remaining balance from the seller. Previously, only the holder of the first mortgage was prohibited from recovering a deficiency. Thus, before this law recently changed, second mortgage holders (and other junior lenders) commonly approved short sales on the condition that they retain the right to recover from the seller any balance owed after the sale. This practice is now illegal.
To illustrate, assume that a seller owes $350,000.00 on a first mortgage, and $60,000.00 on a home equity line of credit (HELOC). Assume also that a buyer offers to purchase the property for $200,000.00, and the first mortgage holder offers to pay the HELOC lender $10,000.00 to approve the sale. Before the law was amended, only the first mortgage holder was prohibited from recovering additional money from the seller (i.e., it could only receive the proceeds from the short sale, which, in this example would be $200,000.00 minus $10,000.00 to the HELOC lender minus costs and real estate commissions). A HELOC lender in this situation, however, would often include a provision in the short-sale approval that gave it the right to recover from the seller the remaining amount owed ($50,000.00 in this example). Junior lenders, such as the HELOC lender in this example, can no longer recover any money outside of the short sale. Like first mortgage holders, a junior lender that approves a short sale now receives only the money it agreed to receive under the terms of the short sale.
Under the law as amended, junior lenders cannot even ask sellers to contribute additional funds as a condition of approving the short sale. Thus, in the example above, the HELOC lender may not ask that the seller agree to contribute any additional funds as a condition of approving the short sale. Previously, junior lenders often negotiated with sellers to receive an additional lump sum payment to satisfy the obligation in full. For example, lenders like the HELOC lender above regularly negotiated an additional $5,000.00 or $10,000.00 from the seller with the promise that the loan would be treated as paid-in-full. This practice is no longer allowed.
Like the original, the modified law continues to apply only to dwellings of four units or less. Unlike the original statute, however, the new law distinguishes between loans that are secured “solely” by the property subject to the short sale and those that are secured by additional collateral (either other real property or personal property). If the loan is secured “solely” by the property subject to the short sale, the lender may not recover any deficiency. If the loan is secured by other property as well, then a lender may recover a deficiency only to the extent that a deficiency would have been available if the property had been sold through non-judicial foreclosure (see our September 2009 Courtside Newsletter for a discussion of judicial and non-judicial foreclosures).
The amended statute retains the exceptions for fraud and waste that were in the original version. This allows lenders to recover compensation from sellers who try to defraud lenders or who damage the property. An example of fraud would be if the seller received money from the buyer outside of escrow. The amended law also retains exceptions for sellers that are corporations or “political subdivisions of the state,” and adds exceptions for limited liability companies and limited partnerships. The result of these exceptions is to make the law applicable only to sellers who are natural persons.
IS THE LAW RETROACTIVE?
Senate Bill 458 officially became law on July 15, 2011 when it was filed with the Secretary of State, and applies to all short sales after that date. Questions arise regarding whether the amended statute provides any protection for sellers who completed short sales before July 15, 2011, or for sellers who entered into short-sale agreements before July 15, 2011 with escrow closing after that date. The analysis of whether a law is retroactive is complex, and involves a number of considerations beyond the scope of this newsletter. It appears, however, that the revised law will protect many sellers who closed escrow before July 15, 2011 or who entered into contracts before that date.
The precise wording of the amended statute states, “No deficiency shall be owed or collected, and no deficiency judgment shall be requested or rendered for any deficiency. . . .” Based upon this wording, a reasonable argument may be made that a lender who has not yet obtained a deficiency judgment will be prohibited from recovering any deficiency from a seller. This analysis is consistent with current California court determinations regarding whether and to what extent a statute is retroactive. It is possible that the words “no deficiency shall be owed or collected,” may even prevent lenders from collecting existing deficiency judgments. How the courts will determine these issues, however, remains to be seen. The legislative history of this amendment strongly suggests that the lawmakers intended immediate protection for all sellers, including those who do not yet have judgments against them. The Giardinelli Law Group is currently vigorously defending deficiency claims based on the interpretation that such claims are absolutely barred as of July 15, 2011.
A LIKELY REPERCUSSION OF THE NEW LAW
Nothing in the amended law requires junior lenders to agree to a short sale. Thus, it will likely likely be more difficult in the future to convince junior lenders to approve a short-sale offer. Instead of accepting a fraction of the amount owed by approving a short sale, junior lenders may prefer to allow the property to go into foreclosure and pursue a deficiency judgment after the foreclosure sale (see our September 2009 Courtside Newsletter for a discussion of when a junior lender may seek a deficiency after a foreclosure sale).
Also, junior lenders may initially withhold approval of a short sale in the hope that the seller may offer additional compensation as an incentive for the lender to sign the short-sale approval. While the law specifically states that junior lenders “shall not require” the seller to pay additional compensation, nothing in the law prohibits sellers from voluntarily offering additional compensation. Whether such a tactic is permissible will likely be the subject of future court decisions.
Senate Bill 458 closed a large loophole in short-sale law, but while it provides important protections for sellers, it creates a likely cost that fewer short sales will be approved by junior lenders. Only time will tell whether this law will have a positive impact on the current mortgage crisis.
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Biography
J Niswonger is the senior litigation attorney at The Giardinelli Law Group, APC. Mr. Niswonger has been a general civil litigator for more than 18 years, and has litigated real estate matters for more than 16 years. In addition to his litigation experience, Mr. Niswonger has successfully mediated a significant number of real estate cases. Mr. Niswonger may be reached at [email protected] or (951) 244.1856.
This Newsletter is a copyrighted publication and may not be reproduced or transmitted in any form or by any means without written permission. This article does not necessarily reflect the point of view of the Giardinelli Law Group, APC, or other person or entity who publishes it. This article provides legal information abridged from statutes, court decisions, and administrative rulings and contains opinions of the writers. Legal information is not the same as legal advice, which is the application of law to an individual’s specific circumstances. Although every effort is made to ensure the information is accurate and useful, it is recommended that you consult with a lawyer to obtain professional assurance that the information provided and your interpretation of it is appropriate for a particular situation. To request further information or to comment on this newsletter, contact us at (951) 244-1856 and visit our website at www.glawgroupapc.com.