Reported by Ai M. Kelley:
Escrow Law changes to advertising, fees, violations, and surrender of license
Statements required to be made by licensed escrow agents have been modified, escrow licensees on condition of disclosure may charge an administration fee for cancelled or postponed escrows, escrow licensee violation of the Real Estate Settlement Procedures Act (RESPA) is now a crime, and procedures have been established for the surrender of an escrow agent’s license.
Amended by AB 804:
Financial Code §17210.2
A licensed escrow agent must include, in any communication, the following statement:
· “This escrow company holds California Department of Corporations Escrow License No. _____.”
Amended by AB 804:
Financial Code §17346
Any advertising referring to the Escrow Agents’ Fidelity Corporation must include the following statement in a “clear and conspicuous manner”:
· “MEMBER OF ESCROW AGENTS’ FIDELITY CORPORATION (EAFC). EAFC POVIDES FIDELITY COVERAGE TO ITS MEMBERS. EAFC IS NOT A GOVERNMENT AGENCY, AND THERE IS NO GUARANTEE OF A PAYMENT OF ANY CLAIM BY THE STATE OF
Amended by AB 804:
Financial Code §17421.5
A licensed escrow agent may charge an administrative fee for handling monies held in an escrow that has been canceled or postponed for at least two months from the most recent closing date called for in mutual escrow instructions, if:
· the cancellation or postponement was not due to any action of the escrow agent, but of the parties to the escrow;
· the amount of the fee was disclosed on the face or front page of the escrow instructions in at least an 8-point bold type font;
· the parties to the escrow initialed the fee instructions disclosure; AND
· the escrow instructions were entered into on or after January 1, 2008.
Added by AB 804:
Financial Code §17425
Any individual subject to the Escrow Law, Financial Code §§17000 et seq., who violates the Real Estate Settlement Procedures Act (RESPA), 12
This also applies to any director, stockholder, trustee, officer, agent, or employee of the individual subject to the Escrow Law.
Editor’s note: This is designed to target referral fees and other kickbacks between providers of services in single-family residence sales financed by mortgages.
Amended by AB 804:
Financial Code §17600
A licensed escrow agent who no longer wishes to be licensed must provide written notification to the commissioner and return the physical license and all other items indicating licensure by the California Department of Corporations to the commissioner with the written notification.
Within 105 days of giving written notice to the commissioner, the still-licensed escrow agent must submit to the commissioner, at his own expense, a closing audit report performed by an independent certified public accountant (CPA) as of the date written notice was given (or for another period as the commissioner may specify).
The closing audit must include, but is not limited to:
- information required by the commissioner;
- a bank reconciliation of the trust account; and
- a verified statement from the independent CPA confirming that all disbursements from the trust account were lawfully made.
The license remains in effect and is not considered “surrendered” until the commissioner has:
- reviewed and accepted the closing audit report;
- determined that there has been no violation of Escrow Law on the part of the licensee; and
- the license is accepted as surrendered by the commissioner in writing.
Reported by Connor P. Wallmark:
The rules reported here discuss the application process for obtaining a reversal of reassessment for transfers between registered domestic partners.
Reversal of reassessment on transfers between registered domestic partners
Amended by SB 559:
Revenue and Taxation Code §62
Upon application to the county assessor and no later than June 30, 2009, any transferee whose property was reassessed on a transfer between registered domestic partners occurring from January 1, 2000 through January 1, 2006 may obtain a reversal of the reassessment. The county may charge a fee for their actual costs incurred for the reassessment reversal.
The application is entitled “Claim for Reassessment Reversal for Registered Domestic Partners,” and states on its face a “certificate of registered domestic partnership” is available from the California Secretary of State.
The application identifies the parties to the transfer, a description of the property, the date of the transfer, and a statement that the transferee and transferor were registered as domestic partners on the date of transfer.
With the application, the applicant must provide the original or a copy of the “Certificate of Registered Domestic Partnership,” naming the transferee and transferor as registered domestic partners showing the domestic partnership was created prior to or concurrent with the date of the transfer.
Any reassessment reversal is prospective only, starting on the lien date of the assessment year during which the application for reversal is filed. No refunds will be made for prior assessment years. On reassessment reversal, the adjusted full cash value of the property for the year of reversal will be the base year value of the assessed property for the assessment year the transfer occurred, adjusted to the year the application is filed, for the following:
● inflation, not to exceed 2% of the prior year assessed value.
This is effective January 1, 2008.
Fee added to LLC state tax
Amended by AB 198:
Revenue and Taxation Code §17942
Every limited liability company (LLC) must pay a tax to the state based upon total income from all sources. Total income consists of gross income plus the costs of goods sold.
In addition, every LLC subject to this tax must annually pay the state a fee equal to:
● $900 if the total income from all sources derived from or attributable to the state for the taxable year is less than $500,000 but $250,000 or more;
● $2,500 if the total income from all sources derived from or attributable to the state for the taxable year is less than $1,000,000 but $500,000 or more;
● $6,000 if the total income from all sources derived from or attributable to the state for the taxable year is less than $5,000,000 but $1,000,000 or more; or
● $11,790 if the total income from all sources derived from or attributable to the state for the taxable year is $5,000,000 or more;
Refund of unfairly apportioned or discriminatory fee
Revenue and Taxation Code §19394
The legislature is conscious of pending litigation questioning the validity of the fee and the changes regarding the fee will take effect on January 1, 2007. Changes regarding an unfairly apportioned or discriminatory fee are applicable to suits for refunds filed on or after the enactment of this act and non-final suits filed prior to the enactment date.
The refund of fees is limited to the amount the fee paid, plus interest, exceeds the amount that would have been assessed had the fee been computed under this act.
These changes are not applicable to pre-January 1, 2007 taxable years. The tax levy provided by this act is within the meaning of Article IV of the Constitution and will take immediate effect.
Editor’s note: See our An overview of the LLC article and Protective Refund Claim – For LLC Gross Receipts Tax [ft Form 378] for more information.
Reported by David F. Crane:
Taxation of lender discount on short sale payoff
26 United States Code §108
For discounts on purchase-assist and improvement loans, the seller no longer adds the amount of the lender’s discount to the price paid by the buyer for the residence to set the price realized on the sale. Instead, the discount on purchase-assist and improvement loans is now deducted from the seller’s cost basis (acquisition cost). The result is congruous with the prior rule: the discount is not reported as discharge of indebtedness income.
For refinancing that is discounted on a short sale, the accounting is very different. The portion of the refinancing exceeding the amount of the seller’s purchase and improvement loans paid off by the refinancing is reported as discharged indebtedness income, limited to the amount of the discount. This discharged amount is taxable at personal income rates. Any discount amount remaining after applying the discount first to the excess funds received from the refinancing of the purchase-assist and improvement loans is then excluded and not reported. However, this remaining amount excluded from income is subtracted from the owner’s cost basis, as in the case of discounted purchase-assist and improvement loans.
Further, the relief from income tax on a short sale payoff discount does not apply to discounts on equity loans since they are neither purchase-assist nor improvement loans.
Editor’s note—As an alternative to a short sale and discount on the payoff of a refinance or equity loan, the seller always holds the put option to stop making payments and force a foreclosure sale. The lender will nearly always bid the full amount of the loan at the trustee’s sale, precluding discharge of indebtedness income taxation on a refinancing or equity loan discount. Thus, the short sale tax rule encourages foreclosure over a sale contingent on refinancing and equity loans.
Reported by Giang Hoang:
Definition of a transfer fee
Added by AB 980:
Civil Code §1098
A transfer fee is a fee on the transfer of an interest in real estate by a covenant, condition or restriction affecting title. It does not include any of the following:
- fees or taxes imposed by a government agency;
- mechanics’ lien fees;
- fees for court-ordered transfers, payment or judgments;
- fees under property agreements in legal separations or divorces;
- fees connected with the administration of estates or trusts;
- fees imposed by a lender or purchaser of loans;
- fees authorized under the Davis-Stirling Common Interest Development Act;
- fees associated with failing to comply with a requirement to perform residential improvements in a property; or
- fees in a document recorded on or before December 31, 2007 giving notice of:
- the fact payment of a transfer fee is required;
- the amount or calculation method of the fee;
- the date or circumstance in which the transfer fee payment requirement expires;
- who the fee is paid to;
- the purpose for which the fee will be used.
Transfer fee disclosure requirements
Added by AB 980:
Civil Code §1098.5
A document entitled “Payment of Transfer Fee Required” must be recorded with the county recorder of the county in which the property is located. This document must contain:
- the title “Payment of Transfer Fee Required” in at least 14-point boldface type;
- the names of all current owners of the property subject to the transfer fee;
- the legal description and assessor’s parcel number for the property;
- the flat amount or percentage of sales price constituting the amount of the fee;
- for residential property, actual dollar cost example of the fee for houses priced at $250,000, $500,000, and $750,000;
- the date or circumstance in which the transfer fee payment requirement expires;
- the purpose for which the fee will be used.
- who the fee is paid to and specific information about where the fee is to be sent; and
- the signature of an authorized representative of the party to whom the fee is paid.
If the transfer fee is imposed prior to January 1, 2008 and the receiver is to receive the payment on or after January 1, 2009, the receiver must record the “Payment of Transfer Fee Required” with the county recorder on or before December 31, 2008.
If the transfer fee is imposed on or after January 1, 2008, the party imposing the transfer fee must record the “Payment of Transfer Fee Required” with the county recorder at the same time he is recording the instrument creating the transfer fee requirement.
The county recorder is only responsible for checking that the document contains:
- the names of the owners;
- the party to whom the fees are paid;
- where the fees are to be sent; and
- an authorized signature is present.
The “Payment of Transfer Fee Required” is be indexed by the name of the owners and the name of party to whom fees are paid.
Additional transfer disclosure requirements
Added by AB 980:
Civil Code §1102.6e
The seller of property subject to a transfer fee which is conveyed after January 1, 2008 must provide the prospective buyer with an a transfer fee disclosure statement. The transfer fee disclosure statement must contain:
- notice that payment of a transfer fee is required upon transfer of the property;
- the amount of the fee required based on the asking price of the property;
- a description of how the fee is calculated;
- notice that the final amount of the fee may be different if the fee is based on a percentage of the final sales price;
- the party to whom the fees are paid;
- the purpose for which the fee will be used; and
- the date or circumstance in which the transfer fee payment requirement expires.
Editor’s note—Prior to the passing of these laws, builders were able to write these so-called “private transfer taxes” into CC&Rs without disclosing their existence or any oversight regarding their use. These laws were enacted to prevent builders from imposing these transfer fees without first disclosing their existence to prospective buyers.
An example of this disclosure statement is contained in first tuesday Purchase Agreement Form 150 §11.3.
Originally effective January 1, 2007 to repeal the exclusion of mobilehome parks from the rules of the 2005 Methamphetamine Contaminated Property Cleanup Act, in addition to establishing rules regarding mobilehome parks and the Methamphetamine Contaminated Property Cleanup Act of 2005.
Definitions for methamphetamine clean-up in mobilehome parks
Amended by AB 2587:
Health and Safety Code §25400.11
- the Certified Unified Program (CUPA);
- fire department or environmental health department; or
- local agency enforcing the State Health law.
The methamphetamine clean-up rules affect mobilehomes or manufactured homes, whether or not they are located within a mobilehome park or special occupancy park (AKA recreational vehicle park).
A “vehicle license stop” is the prohibition by the Department of Motor Vehicles of the renewal of registration or transfer of title or interest on a vehicle.
Notice requirements on property used for methamphetamine production or storage
Amended by AB 2587:
Health and Safety Code §§ 25400.18, 25400.19
Within five days of notification from a law enforcement agency of the methamphetamine contamination, the local health officer is to inspect the mobilehome, manufactured home or recreational vehicle and the land where it is situated and make a report on the cause of the contamination and determine who is responsible for remedying in the contamination.
Local health inspector must determine responsible owner
Amended by AB 2587:
Health and Safety Code §25400.20
If the land on which the mobilehome, manufactured home or recreational vehicle is contaminated, the owner of the mobilehome park or special occupancy park is held responsible.
If the mobilehome, manufactured home or recreational vehicle is contaminated, the registered owner of the home or recreational vehicle is held responsible.
If both the mobilehome, manufactured home or recreational vehicle and the land upon which it sits are contaminated, the local health officer determines whether one or both owners are responsible for remediation, and give notice of responsibility for remediation to the owners deemed responsible.
If the registered owner of a mobilehome, manufactured home or recreational vehicle is found responsible, the local health officer will give a copy of the notice of responsibility for remediation to the owner of the mobilehome park or special occupancy park on which the contaminated home sits.
If the local health inspector finds the property is not contaminated, within three days he must remove all notices posted on the property and provide a written statement containing:
- conclusion of his investigation;
- name, mailing address, space number, or vehicle identification number of the recreational vehicle; and
- property parcel identification number, if applicable.
Notice requirements and penalties for methamphetamine contamination
Amended by AB 2587:
Health and Safety Code §25400.22
No later than ten days after a mobilehome or manufactured home which is attached to real property has been deemed contaminated, the local health inspector is to provide notice of the contamination to the Department of Housing and Community Development (DHCD), including a restraint on the contaminated property.
In cases of a contaminated recreational vehicle, the local health inspector is to provide notice of the contamination to the Department of Motor Vehicles (DMV), including the filing of a vehicle license stop.
If the mobilehome or manufactured home which is located on but not attached to real property has been deemed contaminated, the local health officer is to record a lien against the real property and the DHCD will amend the permanent record of the home, including a restraint on the contaminated property.
A restraint on a mobilehome or manufactured home must be displayed on the property until the restraint is released. Vehicle license stops on recreational vehicles will remain on record until released.
A local health officer must not authorize the release of the contaminated property, whether it be the home or real property, until one of the following occurs:
- the owner satisfies the lien;
- the contamination on the property is remedied to the satisfaction of the local health officer;
- the lien, restraint, or vehicle license stop is extinguished by a senior lien; or
- if the contaminated property is a mobilehome or manufactured home, the destruction of the property on order of the local health official.
Notice to quit due to methamphetamine contamination
Amended by AB 2587:
Health and Safety Code §25400.25
Steps for remediation of methamphetamine contamination
Amended by AB 2587:
Health and Safety Code §25400.26
If the owner of land on which a contaminated mobilehome, manufactured home or recreational vehicle is responsible for the contamination remediation, he must:
- hire an authorized contractor to remedy the contamination;
- keep all required records of the decontamination procedures for three years;
- submit, or have his contractor submit, a preliminary site assessment (PSA) to the local health officer no later than 30 days after hiring the authorized contractor;
- prepare a PSA report with his contractor and submit it to the local health officer; and
- complete all remediation no later than 90 days after the PSA plan is approved.
Steps for release of mobilehome from restraint
Amended by AB 2587:
Health and Safety Code §25400.27
Within 10 days of a local health officer determining a contaminated mobilehome or manufactured home has been remedied and all applicable liens have been paid, he is to release the restraint on the property, specifying:
- the name of the agency that filed the restraint;
- the determined date of contamination;
- the legal identification number of the unit being released; and
- the legal owner, registered owner, and junior lienholders of the released property.
If the released property is a recreational vehicle, the release of vehicle license stop is to specify:
- the name of the agency that filed the restraint;
- the recording date of the vehicle license stop release;
- the vehicle identification number; and
- the legal and registered owner of the property.
A copy of the release stating the property is habitable, or was salvaged or destroyed must be sent to the property owner and the owner of the mobilehome park or special occupancy park where the contaminated property was located.
Rules for transfer of a contaminated mobilehome
Amended by AB 2587:
Health and Safety Code §25400.28
Failure to provide the required notice and copy of remediation order enables the buyer and tenant to void the respective purchase or rental agreements.
If a registered owner responsible for remediation of a contaminated mobilehome, manufactured home or recreational vehicle fails to remediate the property, the owner of the mobilehome park or special occupancy park may hire an authorized contractor to cure the contamination at the cost of the responsible registered owner.
Local governments may force remediation if mobilehome owner is remiss
Amended by AB 2587:
Health and Safety Code §25400.30
If a property owner fails to remedy the contaminated mobilehome, manufactured home or recreational vehicle as required by the remediation order, the city or county in which the property is located may obtain a court order to force the owner to remediate the property. The city or county must give at least 10 days written notice of its intent to force the remediation to the owner of the property. If, within the 10 days, the owner complies with the remediation order the city or county may not obtain a court order against the owner.
PSA plan description may include secondary contamination areas
Amended by AB 2587:
Health and Safety Code §25400.36
The PSA plan required by remediation orders may include the identification of secondary areas of contamination, including, but not limited to, mobilehome parks, special occupancy parks, and any permanent buildings, mobilehomes, manufactured homes, or recreational vehicles adjacent to the contaminated areas.
PSA report requirements
Amended by AB 2587:
Health and Safety Code §25400.37
A PSA plan required by remediation orders must include the following information:
- if the property is a mobilehome or manufactured home, the identity of the legal owner, the registered owner, and any junior lienholders; or
- if the property is a recreational vehicle, the identity of the legal owner and the registered owner.
Penalties for failure to prohibit use or occupancy of a contaminated mobilehome
Amended by AB 2587:
Health and Safety Code §25400.45
Any person who fails to prohibit the use of a property or the portion of a property contaminated by methamphetamine laboratory activity is subject to a penalty of up to $5000.
Owner of contaminated mobilehome liable for costs incurred by park owners
Amended by AB 2587:
Health and Safety Code §25400.46
The owner of a mobilehome, manufactured home, or recreational vehicle in or about which methamphetamines were produced is liable for the costs of the owner of the mobilehome park or special occupancy park resulting from the notice of contamination.
