For a total list of all the real estate laws digested by first tuesday for the 2009-2010 legislative session, click here.

Topics:

  1. Home inspectors may perform HERS home energy audits
  2. Revisions to city and county low-income multifamily rental housing construction requirements
  3. Fines for failure to maintain vacant property subject to an NOD
  4. Dodd-Frank establishment and purpose of the Office of Housing Counseling
  5. Anti-deficiency bars first trust deed recovery on short sales of one to four residential units
  6. Increased fines/imprisonment for adverse possessors who rent out residential units
  7. Additions to the services rendered by a foreclosure consultant

Home inspectors may perform HERS home energy audits

Reported by Heather McCartney

The rules reported here authorize home inspectors to perform HERS home energy audits.

Business and Professions Code §7199.5, §7199.7
Added by A.B. 1809
Effective: January 1, 2011

If requested, a home inspector may perform a Home Energy Rating System (HERS) California home energy audit. The home energy audit must meet the requirements of the HERS regulations established by the California Energy Commission.

Editor’s note— For more information regarding HERS home energy audits, see the August 2010 first tuesday article, Energy efficiency: Not just for hippies.

Revisions to city and county low-income multifamily rental housing construction requirements

Reported by Kelli Galippo

These revisions set forth new qualifications a city or county must meet in order to substitute 25% of new multi-family rental units they are obligated to build for low- and very low-income households during each planning period with the rehabilitation of pre-existing multi-family rental units.

Government Code §65583.1
Amended by A.B. 1867
Effective: January 1, 2011

A city or county must build a certain number of multi-family rental units for low- and very low-income households during each planning period. They have the option to substitute 25% of the units they must build with the rehabilitation of pre-existing units.

Units acquired for rehabilitation must be located in a multifamily rental or ownership housing complex of three (not four) or more units, and must be made available to rent or own at prices suitable for low- or very low-income households.

If a city or county substitutes rehabilitated multi-family units available for low- or very low-income households for a portion of the housing they are required to build in one planning period, at least an equal number of new multi-family units suitable for low- or very low-income households must be constructed within the same planning period.

Fines for failure to maintain vacant property subject to an NOD

Reported by Heather McCartney

The rules reported here set the requirements for the notice to be given by local agencies to a property owner prior to fining the owner for failing to maintain an unoccupied property during foreclosure or after acquiring ownership at a foreclosure sale.

Code of Civil Procedure §2929.4
Added by: S.B. 1427
Effective: January 1, 2011

A government agency policing the failure of a residential property owner to maintain unoccupied property, which is in foreclosure or has been acquired by foreclosure, must give a notice of the violations and an opportunity for the owner to correct the violations before imposing a fine. If the owner of the unoccupied property does not correct the violation, the agency may impose the fine of $1,000 a day, per violation.

Code of Civil Procedure §2929.45
Added by: S.B. 1427
Effective: January 1, 2013

An assessment lien a government agency imposes against a property to recover costs for curing the nuisance created by the property owner’s failure to maintain an unoccupied property, which is in foreclosure or has been acquired by foreclosure, cannot exceed the actual and reasonable costs of the nuisance abatement.

A government agency cannot impose such an assessment lien unless the costs of such abatement have been adopted by the elected officials of a government agency at a public hearing.

Establishment and purpose of the Office of Housing Counseling

Reported by Kelli Galippo

The rules reported here are amendments and additions to the Truth in Lending Act (TILA) made by the Dodd-Frank Wall Street Reform and Borrower Protection Act.

Unless otherwise specified, these amendments became effective July 21, 2010. The Bureau of Consumer Financial Protection (BCFP) will finalize regulations implementing these amendments or additions to provide TILA’s Regulation Z protection, which are effective when issued.

The real estate loans controlled here are Real Estate Settlement and Procedures Act (RESPA) loans (consumer-purpose loans secured by a one-to-four unit residential property, owner-or non-owner-occupied) made or arranged by mortgage loan brokers, and are also now classified by TILA as either “qualified mortgages” or “non-qualified mortgages” (Section 32 high-cost loans), since RESPA loans must meet new TILA disclosure standards.

Director of Housing Counseling responsibilities
42 U.S.C. §3533
Added by H.R. 4173

The Department of Housing and Urban Development (HUD) has established the Office of Housing Counseling (OHC), lead by the Director of Housing Counseling who is appointed by the HUD Secretary.

The OHC is responsible for:

  • research, grant administration, public outreach and policy development related to housing counseling; and
  • establishment and administration of regulations set by HUD related to:

o housing counseling;

o homeownership counseling;

o mortgage-related counseling; and

o rental housing counseling.

The OHC will establish rules for:

  • counseling procedures under the HUD Act of 1968;
  • providing the public with a toll-free telephone number;
  • distributing home buying information booklets;
  • certifying agencies who provide housing counseling;
  • carrying out the housing assistance program;
  • regulating abusive and deceptive lending related to residential mortgage loans;
  • the operation of an advisory committee;
  • collaborating with community organizations specializing in housing counseling; and
  • providing additional counseling services to areas which are lacking.

The OHC will also have an advisory committee of 12 individuals from the mortgage and real estate industry to help the Director execute his responsibilities.

Each member of the advisory committee will serve a three-year term, and can be re-appointed by the HUD Secretary. Four of the initial members will be appointed for a one-year term, and four will be appointed for a two-year term.

The advisory committee will serve without pay, but will receive travel expenses. They will not have any role in determining housing counseling grants.

The OHC must provide counseling which addresses:

  • purchasing a home;
  • selecting a home;
  • issues regarding homeownership and home purchasing; and
  • selling a home.

Housing counseling procedures
12 U.S.C. §1701x
Added by H.R. 4173

Counseling procedures will be established by the Housing and Urban Development (HUD) Secretary, including the materials and forms used by housing counseling services.

Homeownership counseling is defined as counseling related to homeownership and residential mortgage loans.

Rental housing counseling is defined as counseling related to the rental of residential property, including future homeownership counseling.

The HUD Secretary will approve mortgage evaluation software that takes into account:

  • the borrower’s financial situation;
  • the cost of maintaining a home, including insurance, taxes and utilities;
  • how long the borrower expects to remain in the home;
  • the expected time to maturity of the loan; and
  • any other factor the Secretary considers appropriate.

Mortgage evaluation software cannot replace housing counseling, but only be used as a supplement.

Mortgage evaluation software will be made available to the public, but only to the extent the availability complies with the department budget.

The Office of Housing Counseling (OHC) is responsible for developing national public service multimedia campaigns to advertise the availability of housing counseling services through HUD. Each advertisement must display HUD’s toll-free telephone number and website information.

10% of funds used to advertise housing counseling must be used to conduct an education program in areas with a high volume of foreclosures. Direct mailing will be sent out to households about:

  • how to avoid foreclosure rescue scams;
  • how to avoid predatory lending mortgage agreements;
  • how to avoid for-profit foreclosure counseling; and
  • local counseling resources approved by HUD.

The education program will emphasize service to retirement communities and low-income minority communities.

An area with a high density of foreclosures is defined as a metropolitan statistical area with one of the highest national home foreclosure rates.

An area with a high percentage of retirement communities is defined as a metropolitan statistical area with one of the highest national percentages of residents who are 65 or older.

An area with a high percentage of low-income minority communities is defined as an area with a higher-than-average percentage of residents who are minorities and low-income.

HUD will advise and assist states and local government in the establishment of educational programs to inform households about the availability of housing for:

  • home mortgages;
  • mortgage refinancing;
  • home equity loans;
  • home repair loans; and
  • flood or other disaster insurance coverage.

Notification of the availability of homeownership counseling includes notification of the availability of mortgage software systems.

Homeownership and rental counseling assistance is available for state and local counseling agencies approved by HUD. It will be adequately distributed to encourage efficient and successful programs in all areas, but specifically to rural areas with traditionally limited access to counseling services and internet.

Financial assistance will not be given to any organization which:

  • has violated a federal law relating to an election for federal office; or
  • employs individuals who have violated federal law relating to an election for federal office.

Housing counseling agencies and organizations will not receive financial assistance from HUD unless they have been approved by the department.

The HUD Secretary will take actions to ensure individuals and organizations who provide housing counseling know the requirements for approval under HUD.

The HUD Secretary will conduct a study about the causes of default and foreclosure, the role of escrow accounts in helping prime and nonprime borrowers avoid default and foreclosure, and the role of computer registries of mortgages. The report will also include recommendations for legislation and how to best identify populations with the highest need for counseling.

A preliminary report will be submitted to Congress no later than July 21, 2011. A final report will be submitted to Congress no later than July 21, 2012.

HUD, with the Bureau of Consumer Financial Protection (BCFP), will create a database of information on foreclosures and mortgage defaults for one-to-four unit residential properties which will be available to the public.

Information in the database will be collected on a census tract, and include:

  • the number and percentage of mortgage loans delinquent by over 30 days;
  • the number and percentage of mortgage loans delinquent by over 90 days;
  • the number and percentage of real estate owned (REO) properties;
  • the number and percentage of mortgage loans in foreclosure;
  • the number and percentage of mortgage loans with outstanding principal greater than the value of the property; and
  • any other relevant information determined by HUD and the BCFP.

Nothing in the database may be used to encourage discriminatory allocation of credit or lending.

The database will:

  • protect the confidentiality of individuals and their personal information;
  • maintain standards of data integrity and security; and
  • collect and make available information in the database without compromising the confidentiality of individuals and their personal information.

Non-profit organization is defined as a private or public organization which:

  • is organized under state or local laws;
  • has no part of its net earnings used for the benefit of any member or contributor; and
  • complies with financial accountability standards.

Providing information to borrowers about settlement services
12 U.S.C. §2604
Added by H.R. 4173

The Bureau of Consumer Financial Protection (BCFP) will prepare a booklet, at least once every five years, to help individuals applying for a Real Estate Settlement Procedures (RESPA) loan understand the costs of real estate settlement services. The booklet will be available in multiple languages, and will be distributed to all lenders who make RESPA loans. It will also be distributed to homeownership counselors certified by the Department of Housing and Urban Development (HUD).

The booklet will include:

  • a description of the nature and purpose of real estate settlement costs for a federally-related mortgage loan, including descriptions of:

o   balloon payments;

o   prepayment penalties;

o   the advantages of prepayment; and

o   the trade-off between closing costs and the interest rate over the life of the loan;

  • a sample of a settlement statement;
  • an explanation of lending practices, including those prohibited by the Truth in Lending Act (TILA);
  • a list of questions a borrower of a federally-related mortgage loan should ask regarding the loan;
  • an explanation of the right of rescission regarding certain transactions;
  • an explanation of an adjustable-rate mortgage (ARM) and a reference to the book titled, “Consumer Handbook on Adjustable Rate Mortgages,” published by the Director of Housing Counseling;
  • an explanation of a home equity line of credit and a reference to the pamphlet required to be provided under TILA;
  • information about homeownership counseling services and a recommendation that the borrower use them;
  • an explanation of escrow accounts;
  • an explanation of the borrower’s right to choose the professionals who provide services pertaining to real estate settlement;
  • an explanation of the borrower’s responsibilities, liabilities and obligations in a mortgage transaction;
  • an explanation of real estate appraisals, including the difference between an appraisal and home inspection; and
  • notice that HUD has made available a brochure about loan fraud, a website address and toll-free telephone number for where to obtain the brochure.

The booklet will take into consideration California mortgage procedures.

HUD will inform potential homebuyers of the importance of an independent home inspection by:

  • publishing form HUD 92564-CN, titled “For Your Protection: Get A Home Inspection” in both English and Spanish;
  • publishing a HUD/FHA booklet, titled “For Your Protection: Get A Home Inspection” in both English and Spanish;
  • publishing a HUD booklet, titled “For Your Protection: Get A Home Inspection” that does not reference FHA-insured homes, in both English and Spanish; and
  • publish a document, titled “Ten Important Questions to Ask Your Home Inspector” in both English and Spanish.

The materials will be available electronically, through home counseling organizations, or by calling the toll-free telephone number for HUD.

Training for HUD-approved housing counseling agencies will include:

  • the importance of getting an independent home inspection;
  • reasons for specific inspections such as radon and lead-based paint testing;
  • how to locate and select a qualified home inspector; and
  • a review of home inspection materials from HUD.

Anti-deficiency bars first trust deed recovery on short sales of one to four residential units

Reported by Heather McCartney

The rules reported here describe the protection a homeowner who sells his property in a short sale has against a lender’s deficiency judgment.

Code of Civil Procedure §580e
Added by: S.B. 931
Effective: January 1, 2011

When a homeowner sells a one-to-four unit residential property encumbered by a first trust deed in an amount exceeding the net proceeds from the sale and the lender accepts the sales proceeds in exchange for reconveyance of their trust deed, commonly called a short sale, the difference (discount) is discharged and the lender barred from collecting any deficiency.

However, this anti-deficiency protection does not protect a homeowner from liability for his fraud in the sale or waste to the property securing the first trust deed.

Editor’s note — While this increased anti-deficiency protection may seem like a victory for the underwater homeowner, it does not provide anti-deficiency protection for home equity loans when the first forecloses and wipes out the second trust deed — the primary source of deficiency judgments in California.

The legislature did not define dwelling as limited to only owner-occupied single-family residences, as they did in Code of Civil Procedure §580b for purchase-assist loans to acquire a primary residence the borrower will occupy. Hence, this anti-deficiency legislation applies to all one to four residential units, owner occupied or a rental, barring recovery of any deficiency in the value of the property to fully justify the loan on the discount pay off, whether the loan is a purchase-assist loan or a refinance.

Increased fines/imprisonment for adverse possessors who rent out residential units

Reported by Heather McCartney

The rules reported here increase the penalty for individuals who claim ownership or take possession to an owner’s property without consent for the purpose of renting the property to a tenant, commonly called adverse possession.

Penal Code §602.9
Amended by: AB 1800
Effective: January 1, 2011

An individual is guilty of a misdemeanor if he claims ownership or takes possession of a residential property with the intent of renting it to a tenant, without the owner’s permission. Previously punishable by a fine of up to $1,000 and/or up to six months in county jail, the current punishment has been increased to a fine of up to $2,500, one-year imprisonment in the county jail or both. Each violation is punishable separately.

This law does not preclude an adverse possessor from being prosecuted on grand theft, fraud charges or other applicable provisions of law.

Additions to the services rendered by a foreclosure consultant

Reported by Kelli Galippo

This amendment expands the list of services rendered by a foreclosure consultant.

Civil Code §2945.1
Amended by A.B. 2325
Effective: January 1, 2011

The definition of a service offered or provided which classifies one as a foreclosure consultant now includes arranging or attempting to arrange an audit of a mortgage secured by a residence in foreclosure, unless the person arranging or attempting to arrange the audit is the property owner’s attorney.