2014 New Laws for California Realtors

Here is a list of New Laws mostly taking effect next year that may affect your real estate practice or otherwise be of interest to REALTORS®. The full text of each new law is available at http://leginfo.legislature.ca.gov.

This legislative session’s new laws cover a wide range of topics of interest, including disclosure requirements, licensing matters, adjoining owners, affiliated real estate services, landlord-tenant, subdivisions, land use, employment, and many more. Some of the significant new laws for REALTORS® are as follows:

TDS Revised to Include Construction Defect Litigation

Effective July 1, 2014, the Real Estate Transfer Disclosure Statement (TDS) has been revised to require disclosure of the seller’s knowledge of certain construction defect claims for newly constructed homes.  As amended, the TDS will inquire, in question 16 of Section 11C, as to whether a seller is aware of any claims or lawsuits involving construction defects threatening to or affecting the real property, including any pre-litigation claims of a construction defect, claims of breach of warranty, or claims for breach of an enhanced protection agreement under SB 800. Senate Bill 652.

Disciplinary Action for Broker Record Tampering

Starting January 1, 2014, the Bureau of Real Estate can suspend or revoke the license of any real estate salesperson, broker, or corporate brokerage, if the broker, salesperson, or any director, officer, employee, or agent of the corporation, knowingly destroys, alters, conceals, mutilates, or falsifies any of the books, papers, writings, documents, or tangible objects required to be maintained and provided upon notice, or sought in connection with an investigation, audit, or examination. Under existing law, a real estate broker must generally retain for 3 years copies of all documents executed or obtained by him in connection with any transactions involved licensed activities. Senate Bill 676.

Consumer Protection Against Prepaid Rental Listing Services

Beginning on January 1, 2014, the California Bureau of Real Estate (CalBRE) is authorized to issue a citation to an unlicensed person for engaging in prepaid rental listing services without a prepaid rental listing service license or real estate broker license. As background, a prepaid rental listing service is generally a business that charges a fee for providing a prospective tenant with a list of available places for rent. Existing required content for a written contract that a prepaid rental listing service licensee must offer a prospective tenant before accepting a fee has been broadened to include the licensee’s license number as well as a specific statutory notice about refunds. An aggrieved person with a final judgment against a prepaid rental listing service licensee may apply to CalBRE for payment from the Consumer Recovery Account. Any payment from the Consumer Recovery Account will result in automatic suspension of the prepaid rental listing service licensee. Senate Bill 269.

FTB Information Return for Out-of-State Acquisition in 1031 Exchange

For any 1031 exchange that occurs on or after January 1, 2014, a taxpayer acquiring a “like-kind” property located outside of California must file an information return with the Franchise Tax Board (FTB) for that taxable year and every year thereafter in which the gain or loss from the exchange has not been recognized. If a taxpayer fails to file such information return and tax returns, the FTB may propose to assess the amount of tax, interest, and penalties due by estimating net income from any available information, including the amount of gain. Assembly Bill 92.

Adjoining Owners Equally Responsible for Shared Fences and Boundaries

Commencing January 1, 2014, adjoining landowners must share equally the responsibility for maintaining boundaries and monuments between them. Adjoining landowners are presumed to share an equal benefit from any fence dividing their properties, as well as equal costs for construction or maintenance, unless otherwise agreed in writing. This new law also provides specific procedural requirements for an owner who intends to incur costs for a division fence to notify the adjoining owner of the estimated costs and other information. Existing law enacted in 1872 which requires a homeowner who fully encloses a property to refund a neighbor a just proportion of the value of a division fence has been repealed. Assembly Bill 1404.

Increased Insurance Requirements for Structural Pest Control

As of January 1, 2014, existing law allowing a structural pest control operator to file with the Structural Pest Control Board evidence of either an insurance policy or bond as specified, has been revised to eliminate the option of the bond. Furthermore, the minimum limit of the insurance policy that an operator must maintain has been increased from $25,000 to $500,000 for bodily injury and destruction of property. Additionally, the amount of a surety bond that an operator must maintain has been increased from $4,000 to $12,500. Also, the surety bond requirement for reissuance of a license or registration after suspension or revocation has been increased from a range of $1,000 to $8,000, to a range of $8,000 to $25,000. Senate Bill 662.

Smoke Detectors Specifications Changed

Starting on July 1, 2014, the State Fire Marshall will not approve a battery-operated smoke alarm unless it contains a non-replaceable, non-removable battery capable of powering the smoke alarm for at least 10 years. This rule was originally slated to take effect on January 1, 2014. Until July 1, 2015, an exception to this rule applies to smoke alarms ordered by, or in the inventory of, an owner, managing agent, contractor, wholesaler, or retailer on or before July 1, 2014. Furthermore, starting January 1, 2015, the State Fire Marshal will not approve a smoke alarm unless it does all of the following: (1) displays the date of manufacture on the device; (2) provides a place on the device to insert the date of installation; and (3) incorporate a hush feature. A previous requirement for the smoke alarm to incorporate an end-of-life feature that provides notice that the device needs to be replaced has been eliminated. The requirements taking effect on January 1, 2015 was originally slated to take effect on January 1, 2014. The State Fire Marshal has the authority to create exceptions to these requirements. Senate Bill 745.

Title Companies Protected for Good Faith Filing of Notice of Default or Sale

Except when acting as a trustee, a title insurance company is not liable for violating certain laws prohibiting the filing of a notice of default or notice of sale if the title company, while acting in good faith and in the normal course of business, records or causes to record a notice of default or notice of sale at the request of the trustee, substituted trustee, or beneficiary. This protection applies to the following laws: (1) prohibition against the filing of a notice of default until 30 days after the lender contacts a borrower to explore options of avoiding foreclosure; (2) prohibition against the filing of a notice of default or sale if a short sale is approved by all parties as specified; (3) prohibition against the filing of a notice of default or sale if the borrower has submitted a complete loan modification application as specified; and (4) injunctive relief for certain violations. Senate Bill 310.

Literal Translation of “Notary Public” in Ads Prohibited

Effective October 5, 2013, any person who is not an attorney is guilty of the unauthorized practice of law for literally translating from English into another language any words that imply that the person is an attorney, including “notary public,” “notary,” “licensed,” “attorney,” or “lawyer” in any advertisement or other document. The literal transaction of the phrase “notary public” into Spanish as “notario publico” or “notario” (which means in Spanish an attorney with special credentials, not a notary public) are explicitly prohibited by anyone other than an attorney. A person who violates this law may be held liable in a civil action brought by the State Bar for a penalty up to $1,000 per day for each violation. The civil penalty is in addition to any other remedies, including criminal prosecution for a misdemeanor punishable by one year imprisonment, plus a $1,000 fine. Assembly Bill 1159.

Landlord Required to Provide Specific Utility Rate Schedules

Starting January 1, 2014, a master-meter customer of an apartment building, mobilehome park, or similar residential complex, must post in a conspicuous place the applicable specific current residential gas or electrical rate schedule as published by the serving utility, rather than the prevailing residential utilities rate schedule as previously required. Alternatively, the landlord as a master-meter customer may elect to post a website address for a tenant to access the schedule as long as the landlord also does the following: (1) state in the posting that an individual user may request a copy of the specific current residential gas or electrical rate schedule from the master-meter customer; and (2) provide the schedule upon request at no cost. Senate Bill 196.

Protection of Victims of Human Trafficking as Tenants

Beginning January 1, 2014, a residential tenant can terminate a tenancy within 30 days by notifying the landlord that the tenant was a victim of human trafficking as defined. The tenant’s notice to terminate tenancy must generally include a copy of a police report or court order regarding the tenant or tenant’s household member. From January 1, 2014 to January 2016, however, a tenant may simply provide documentation from a qualified third party professional indicating that the tenant or household member is seeking assistance for physical or mental injuries resulting from the offense. This law also prohibits a landlord from terminating a tenancy, or failing to renew a tenancy, based on acts of human trafficking if documented by a police report or protective court order and the wrongdoer is not a tenant of the same dwelling unit. The landlord, however, may terminate the tenancy if, after invoking protection under this law, the tenant allows the wrongdoer named in the police report or protective order to visit the property, or the landlord reasonably believes that the wrongdoer poses a physical threat to other tenants or to the tenant’s right to quiet possession. Existing law already protects a tenant if the tenant or tenant’s household member is a victim of domestic violence, sexual assault, or elder or dependent adult abuse. Senate Bill 612.

Enactment of Commercial and Industrial Common Interest Development Act

The Commercial and Industrial Common Interest Development Act has been enacted to, starting January 1, 2014, provide for the creation and regulation of commercial and industrial common interest developments. Many provisions of the new law are patterned after provisions in the Davis-Stirling Common Interest Development Act for residential properties, including association governance, operating rules, and property use and maintenance. However, various provisions of the Davis-Stirling Act are not part of the Commercial and Industrial Common Interest Development Act, including, among other things, sales disclosure requirements, board and member meetings, accounting, and dispute resolution. Senate Bill 752.

Revised Billing Statement for HOA Documents and Other Changes

Commencing on January 1, 2014, existing law requiring a homeowners’ association (HOA) to use a statutory form for billing charges for HOA sales disclosures has been revised. The new law requires the form to be in at least 10-point type and include an itemization for “Rental Restrictions, if any.” Furthermore, existing law stating that, when an inconsistency exists, governing documents prevail over articles of incorporation, which in turn prevail over bylaws, and in turn prevail over operating rules, has been revised to apply when a conflict, not inconsistency, exists. Additionally, existing law requiring delivery of documents to an HOA by email, fax, other electronic means, or personal delivery if the HOA consents to any of those methods, has been extended to allow delivery by first-class mail, postage prepaid, registered or certified mail, express mail, or overnight delivery by an express service center, regardless of HOA consent. Senate Bill 745.

Condominium Manager Exempt from Contractors Law

Effective January 1, 2014, the law states that a common interest development manager performing management services is not required to have a contractor’s license. Conversely, the term “contractor” or “consultant” does not include a common interest development manager. A “common interest development manager” is generally defined as someone who, for compensation or in expectation of compensation, provides or contracts to provide management or financial services (or represents himself or herself as providing management or financial services) to a condominium complex or other common interest development. Real estate agents who are property managers performing activities for which a real estate license is required are already exempt from the contractor’s licensing requirements under existing law. Senate Bill 822.

24 Month Extension for Approved Tentative Subdivision Maps

To allow cities and counties to preserve development applications not currently being processed due to adverse economic conditions in the construction industry, the existing time frame that an approved tentative map or vesting tentative map for subdivided parcels of land under the Subdivision Map Act has been extended. Under existing law, an approved tentative map or vesting tentative map generally expires within 24 to 36 months, depending on local ordinance. The new law, effective July 11, 2013, automatically allows an additional 24 months for any map approved on or after January 1, 2000 if the map was not expired as of July 11, 2013. A tentative map or vesting tentative map approved on or before December 31, 1999 can also be extended by 24 months if the subdivider applies for an extension at least 90 days before the expiration of the map, and the map is determined to be consistent with applicable zoning and general plan requirements. Assembly Bill 116.

Local Code Enforcement Officer Can Determine Substandard Housing

As of January 1, 2014, the enforcement authority for determining certain substandard housing conditions previously delegated only to county health officers, has been expanded to include local code enforcement officers as defined. To help clean up blighted areas, an infestation of insects, vermin, or rodents, as well as inadequate garbage storage and removal facilities, can now be determined by a local code enforcement officer if the city does not have an agreement or the resources to contract for county health services. To qualify to make these determinations, the local code enforcement officer must successfully complete a course of study in the appropriate subject matter as determined by the city. A property owner will not be cited by both local and county enforcement agencies for the same violation regarding pest infestation or inadequate garbage storage or removal. Senate Bill 488.

City May Allow Small-Scale Urban Farms

Beginning on January 1, 2014, the Urban Agriculture Incentive Zone Act has been enacted to promote small-scale sustainable urban farm enterprises. This new law authorizes a city or county and a landowner to enter into a contract for at least 5 years to restrict the use of vacant, unimproved, or otherwise blighted lands for small-scale production of agricultural crops and animal husbandry. The property must be at least 0.10 acres in size. The county assessor must value property restricted for crops and animal husbandry at a rate based on the average per-acre value of irrigated cropland in California, adjusted proportionately to reflect the acreage of the property as specified. This law expires on January 1, 2019. Assembly Bill 551.

For detailed information on ALL new laws login to the CAR webpage.

Limited Liability Companies: A Limited Yet Informative Overview

A limited Liability company (LLC) is a flexible form of enterprise that blends elements of partnership and corporate structures.  An LLC is similar to a corporation in that it provides limited liability to its owners for the debts and actions of the LLC.  Other features of an LLC are more like a partnership, providing management flexibility and the benefit of pass-through taxation.

BIG Misnomer:

An LLC is often incorrectly called a “limited liability corporation” (instead of company), when in fact it is a hybrid business entity having certain characteristics of both a corporation and a partnership or sole partnership.

LLCs and Real Estate:

With regard to real estate, LLCs are usually formed by owners of investment/income –producing property to protect them from certain financial risks and provide them with pass-through taxation (see IRS LINK below).

Special Note:

It is important to understand that limited liability does not imply that owners are always fully protected from personal liabilities.  Courts can and sometimes will pierce the corporate veil of an LLC when some type of fraud or misrepresentation is involved.  Similarly, LLC rules and laws may vary from state to state.

Link to IRS Page on LLCs

MOST IMPORTANT NOTE:
Client questions regarding LLCs, how to form them, their benefits and/or disadvantages, should always be directed to and answered by a real estate or tax Attorney.

 

Mortgage cancellation relief for home owners has been extended!

As seen on Reatlor.org

On Jan. 1 both the Senate and House passed H.R. 8, legislation to avert the “fiscal cliff.” The bill will be signed shortly by President Barack Obama.

Below are a summary of real estate related provisions in the bill:

Real Estate Tax Extenders

  • Mortgage Cancellation Relief is extended for one year to Jan. 1, 2014
  • Deduction for Mortgage Insurance Premiums for filers making below $110,000 is extended through 2013 and made retroactive to cover 2012
  • 15 year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012.
  • The 10 percent tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012.

Permanent Repeal of Pease Limitations for 99% of Taxpayers

Under the agreement so called “Pease Limitations” that reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstituted for high income filers.  These limitations will only apply to individuals earning more than $250,000 and joint filers earning above $300,000.  These thresholds have been increased and are indexed for inflation and will rise over time.  Under the formula, the amount of adjusted gross income above the threshold is multiplied by three percent.  That amount is then used to reduce the total value of the filer’s itemized deductions.  The total amount of reduction cannot exceed 80 percent of the filer’s itemized deductions.

These limits were first enacted in 1990 (named for the Ohio Congressman Don Pease who came up with the idea) and continued throughout the Clinton years.  They were gradually phased out as a result of the 2001 tax cuts and were completely eliminated in 2010-2012.  Had we gone over the fiscal cliff, Pease limitations would have been reinstituted on all filers starting at $174,450 of adjusted gross income.

Capital Gains

Capital Gains rate stays at 15 percent for those the top rate of $400,000 individual and $450,000 joint return.  After that, any gains above those amounts will be taxed at 20 percent.  The 250/500k exclusion for sale of principle residence remains in place.

Estate Tax

The first $5 million dollars in individual estates and $10 million for family estates are now exempted from the estate tax.  After that the rate will be 40 percent, up from 35 percent.  The exemption amounts are indexed for inflation.

Blog post by: Realtor.org

2013 3.8% tax information from NAR

Beginning January 1, 2013, a new 3.8 percent tax on some investment income
will take effect. Since this new tax will affect some real estate transactions, it is important for REALTORS® to clearly understand the tax and how it could impact your clients. It’s a complicated tax, so you won’t be able to predict how it will affect every buyer or seller.

To get you up to speed about this new tax legislation, the NATIONAL
ASSOCIATION OF REALTORS® has developed this informational brochure.
On the following pages, you’ll read examples of different scenarios in which this new tax — passed by Congress in 2010 with the intent of generating an estimated $210 billion to help fund President Barack Obama’s health care and Medicare overhaul plans — could be relevant to your clients.

Understand that this tax WILL NOT be imposed on all real estate transactions, a common misconception. Rather, when the legislation becomes effective in 2013, it may impose a 3.8% tax on some (but not all) income from interest, dividends, rents (less expenses) and capital gains (less capital losses). The tax will fall only on individuals with an adjusted gross income (AGI) above $200,000 and couples filing a joint return with more than $250,000 AGI.

Click here to download brochure or visit Realtors.org website for more information.

Summary of the National Mortgage Settlement Act

In February 2012, the United States Department of Justice announced a settlement with five major banks accused of robo-signing and other fraudulent foreclosure practices. Here are the major details of the settlement:
What’s the Settlement Worth?:
Roughly $25 billion dollars (with additional $4 billion pending the sign-on of 9 small banks).
Participating Banks:
Ally/GMAC – Bank of America – Citi – JPMorgan Chase – Wells Fargo
Where the Money Goes:

  • $5 billion consisting of $2000 payments to borrowers who were foreclosed on between Jan. 1, 2008 and Dec. 31, 2011 and who were subjected to the fraudulent practices.

$20 billion will be used towards foreclosure alternatives:

  • $10 billion will go to borrowers who are delinquent on their mortgage.
  • $7 billion towards assisting homeowners through short sales, forebearance, relocation assistance, or other alternatives.
  • $3 billion will be spent helping borrowers who owe more than the value of their home to refinance.

Deadlines (From March 2012):
30 – 60 Days: Negotiators will select an administrator to handle logistics of the settlement and monitor compliance.
6 – 9 Months: The settlement administrator and attorneys general will identify homeowners eligible for immediate cash payments and notify them by mail.
3 Years: The settlement should be completed by the banks.
Additional Notes:
Robo-signing practices are forbidden.
Dual-track Foreclosures (working with the homeowner on modification of the loan while simultaneously pursuing foreclosure) is forbidden.
Fannie Mae and Freddie Mac insured loans are not impacted by this settlement.
Special recourse is in place for Servicemembers who were charged over 6% interest rates after a valid request to lower their rates under the Servicemembers Civil Relief Act (SRCA) or who were wrongly foreclosed on.  Any compensation by the banks to Servicemembers will be in addition to the core $25 billion settlement amount.
Money will be distributed differently for different states.
• California will receive the most of any state: $12 billion
• Oklahoma was not a party to this settlement, creating their own agreement worth $18.6 billion.
What does this mean for you the agent?
Banks will be open to exploring more options
Banks are incentivized to push completed paperwork through.
Phone numbers to help you research:
• Ally/GMAC: 800.766.4622
• Bank of America: 877.488.7814 (Available M-F 7am-9pm CT & Saturdays 8am-5pm CT)
• Citibank: 866.272.4749
• JP Morgan Chase: 866.372.6901
• Wells Fargo: 800.288.3212 (Available M-F 7am-7pm CT)
Websites that can help you do your research:
• Official Site for the Settlement: http://www.nationalmortgagesettlement.com
• To locate Attorney General in your state: http://www.NAAG.org
• To determine if a loan is ineligible due to insurance by Freddie or Fannie:
http://www.fanniemae.com/loanlookup
http://www.freddiemac.com/mymortgage

Information source is www.nationalmortgagesettlement.com.

Click here for the fact sheet.

New 2012 Real Estate Laws!

Effective January 1:

AB 771— HOA Excessive Document Fees

Home Owner Associations can only collect a reasonable fee for procuring, preparing, reproducing and delivering HOA disclosures and governing documents when a home is being sold. This new law also requires that an HOA give estimates of their fees up front, and prohibits the HOA or a third party from tacking on other fees, fines, assessments or nonessential documents as a precondition for providing the HOA documents. Likewise, the HOA cannot charge an extra fee for electronic delivery of this information if the HOA maintains it electronically.

SB 150 Common-Interest Development/Condo Rentals

Owners of units in a common-interest development (usually a condominium) cannot be prohibited from renting or leasing their units unless it was restricted before they took ownership. SB 15o does not apply to rental restrictions before January 1, 2012.

SB 150 also requires that owners of condo units, prior to renting them, provide to their HOA proof of their purchase date as well as contact information of their prospective tenants. Certain changes of title—probate, spousal, parent-t0-child, adding a joint tenant, and other transfers exempt from property tax reassessment—do not reset the date of ownership.

Effective April 1:

SB 4—Foreclosure Sale

A Notice of Trustee Sale (NOT), which apprises homeowners as to the date and location of a foreclosure auction, must provide more user-friendly information on how to seek a postponement. These notices must also specify the risk for potential buyers of a foreclosure.

SB 4 also will also require a bank or their authorized servicing agents to provide timely information to anyone via internet, telephone recording or other free services regarding sales dates and postponements.

Click here to view all new laws.