December 2010 LWs

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

Topics:

Federal housing programs for senior citizens based on age are not discriminatory
Net investment income Medicare tax
Landlord’s responsibility to tenants who are victims of domestic violence, sexual assault or stalking
Dodd-Frank changes to appraisal procedures
Dodd-Frank changes to servicing procedures
Corporate LLCs must contribute to the Unemployment Fund
Unlawful detainer actions and foreclosure

These regulations clarify the rights of senior citizen housing facilities to express preference for residents based on age without being considered discriminatory. They also add to the definition of discrimination any prejudice based on a resident’s source of income.

Reported by Kelli Galippo

Federal housing programs for senior citizens based on age are not discriminatory
Civil Code §§51.2, 51.10; Government Code §12955
Amended by S.B. No. 1252

Effective: January 1, 2011

Resident preference based on age in a federal housing program is not considered age discrimination.

Housing discrimination based on source of income is prohibited

Government Code §§12920, 12921, 12955.8

Amended by S.B. No. 1252

Effective: January 1, 2011

Discrimination in housing accommodations based on a resident’s source of income is prohibited.

‘Source of income’ defined

Government Code §12927

Amended by S.B. No. 1252

Effective: January 1, 2011

“Source of income” is defined as lawful, verifiable income paid to a tenant or a representative of a tenant. A landlord is not considered a representative of a tenant. [For more information regarding income discrimination, see the October 2010 first tuesday Recent Court Decision, Landlord’s refusal to qualify a tenant based on income from Section 8 funds is not discriminatory.]

Adjusted civil penalty charges for discrimination

Government Code §12987

Amended by S.B. No. 1252

Effective: January 1, 2011

If an individual is charged with discrimination in housing accommodations based on race, color, religion, sex, sexual orientation, marital status, national origin, ancestry, familial status, source of income or disability, the payment of civil penalty cannot exceed:

$16,000 for one violation;
$37,500 for two violations within a five-year period; or
$65,000 for two or more violations within a seven-year period.

This new income tax code imposes an additional Medicare flat tax on part of all net investment income for AGI threshold individuals.

Reported by Kelli Galippo

Net investment income Medicare tax

Health Care and Education Reconciliation Act of 2010

Added by H.R. 4872

Effective: December 31, 2012, beginning with the tax year 2013

H.R.4872 added to the Internal Revenue Code (IRC) chapter 2A titled Unearned Income Medicare Tax comprised of IRC section 1411 – Imposition of tax.

The tax is a flat 3.8% on the amount of passive income category and portfolio income category income and profit — net investment income — reported by individual taxpayers with an Adjusted Gross Income (AGI) in excess of the Medicare Tax Threshold. This Medicare tax is in addition to and without concern for any other income taxes the individual taxpayer may owe the Internal Revenue Service (IRS) under the IRC. Entities are not subjected to this Medicare Tax, nor are business income and profits reported by individuals as their trade or business category income on which self-employment taxes are paid.

Investment property income and profits, to the extent they drive the AGI over the Medicare threshold, will be taxed at 3.8% Medicare rate.

Specifically, the 3.8% Medicare tax only applies to reportable income and profits from all sources other than non-passive trade or business category income. Income and profits from annual operations and sales of investment real estate reported in the passive income category (rentals including passive business operations) or portfolio income category are subject to the 3.8% Medicare tax. Further, reportable investment property income or profit is taxed at 3.8% only up to the amount the individual taxpayer’s total AGI exceeds his threshold, $250,000 for a married couple jointly reporting.

Editor’s note — For example: a $300,000 reportable profit (not exempt profit (an installment sale) or excluded profit (a §1031 reinvestment)) on a sale of a rental property subject to standard income tax rates, when the owner’s total AGI — not his taxable income — on his joint return is $400,000 will pay 3.8% Medicare tax on $150,000 of his $300,000 rental property sales profit.

The tax is incurred on reportable investment income and profits, and thus does not affect §121 home profit exclusions or §1031 tax deferred exchanges of passive and portfolio properties. Trade or business category profits (and income) on the sale of real estate, reportable or deferred under §1031, are not subject to the Medicare tax since they are not investment properties.

Investment property income and profits, to the extent they drive the owner’s AGI over the Medicare threshold, will be additionally taxed at the 3.8% Medicare rate.

Non-resident foreigners do not owe the Medicare Tax on their investment income and profits.

The Medicare Tax AGI thresholds triggering imposition of the 3.8% tax on investment property income and profit are:

$250,000 for married taxpayers filing a joint return;
$125,000 for a married taxpayer filing separately; and
$200,000 for a single taxpayer.

If the individual taxpayer’s AGI exceeds the threshold for their tax return status, they will owe the additional flat tax of 3.8% on the amount exceeding the threshold up to and limited to their net investment income they reported.

Net investment income is reportable income and profits (income and profits minus expenses, interest, depreciation and deferral, exemption or exclusion of profit) which are reported as:

passive income category income as part of the taxpayer’s AGI, including investments in rentals of all types in which the owner is active, and passive trade or business income on which no self-employment taxes are to be paid; and
portfolio income category income as part of the taxpayer’s AGI, including investments in trust deed notes, land held for profit, triple-net leased rental property, personal residence, stocks and bonds.

The following plans are not considered net investment income:

qualified pensions;
profit-sharing plans;
stock bonus plans;
qualified annuity plans;
retirement accounts;
Roth IRA plans; and
eligible deferred compensation plans.

These codes explain the rights and responsibilities of a landlord to tenants who are victims of domestic violence, sexual assault or stalking.

Reported by Kelli Galippo

Landlord’s responsibility to tenants who are victims of domestic violence, sexual assault or stalking

Civil Code §1941.5

Added by S.B. 782

Effective: January 1, 2011

These rules only apply to any lease executed on or after January 1, 2011.

If a person who is restrained from contacting a tenant by a court order or named in a police report does not live in the same unit as the protected or complaining tenant:

the tenant’s landlord has to change the locks on the protected tenant’s unit following a written request by the protected tenant within 24 hours after the landlord receives a copy of the court order or a copy of the police report; or
the protected tenant may change the locks on their unit without the landlord’s permission if the landlord fails to change the locks within the 24 hours.

If the protected tenant changes the locks on their unit without the landlord’s permission because the landlord failed to change them within the 24 hour period:

the new locks must be of similar or better quality than the original locks;
the landlord must be notified within 24 hours of the lock change; and
the landlord must be provided a new key.

Civil Code §1941.6

Added by S.B. 782

Effective: January 1, 2011

These rules only apply to any lease executed on or after January 1, 2011.

If a person who is restrained from contacting a tenant by a court order lives in the same unit as the protected tenant:

the protected tenant’s landlord has to change the locks on the protected tenant’s unit on written request by the protected tenant within 24 hours after the landlord’s receives a copy of the court order that excludes the restrained person from the unit; or
the protected tenant may change the locks on their unit without the landlord’s permission if the landlord fails to change the locks within the 24 hour period.

If the protected tenant changes the locks on their unit without the landlord’s permission because the landlord failed to change them within 24 hours of a written request:

the new locks must be of similar or better quality than the original locks;
the landlord must be notified within 24 hours of the lock change; and
the landlord must be provided a new key.

These regulations apply to any lease executed on or after January 1, 2011.

If locks are changed, the landlord is not responsible for any tenant excluded from a unit with changed locks.

A tenant who has been excluded from a unit is still responsible for their lease agreement.

Code of Civil Procedure §1161.3

Added by S.B. 782

Effective: January 1, 2011

A landlord cannot terminate or fail to renew a lease based on acts of domestic violence, sexual assault or stalking committed against a tenant or a member of a tenant’s household if:

the act(s) have been documented by:

o a temporary restraining order or emergency protective order issued within the last 180 days; or

o a copy of a written report issued by a peace officer within the last 180 days stating the tenant is a victim of domestic violence, sexual assault or stalking; and

the person named in the restraining order or police report as responsible for committing domestic violence, sexual assault or stalking against the tenant is not a tenant of the same unit as the protected tenant.

A landlord can terminate or decline to renew a lease based on acts of domestic violence, sexual assault or stalking committed against a tenant or a member of a tenant’s household if:

either:

o the protected tenant allows the person responsible for committing domestic violence, sexual assault or stalking against the tenant to visit the property; or

o the landlord reasonably believes the presence of the person responsible for committing domestic violence, sexual assault or stalking against the tenant poses a physical threat to other tenants, guests, invitees or licensees; and

the landlord gave the tenant at least three days’ notice to correct either violation and the tenant did not comply.

A landlord is not responsible to any other tenants for any action arising from the landlord’s compliance with these regulations.

These amendments became effective July 21, 2010, unless otherwise specified. 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.

Reported by Kelli Galippo

Property appraisal requirements

Truth in Lending Act15

U.S. Code 1631 §129H

Added by H.R. 4173

A lender making a high-risk Real Estate Settlement Procedures Act (RESPA) mortgage (Section 32 loan) must obtain a written appraisal of the property prepared by a licensed appraiser based on a physical inspection of the property.

If the high-risk mortgage (Section 32 loan) funds the purchase of property on a flip of the property by the seller within 180 days after the seller acquired it at a price lower than the current resale price, a second appraisal from a different appraiser is required. The second appraisal must include analysis of the difference in sale prices, changes in market conditions and improvements to the property between the date the seller acquired it and the current sales date.

Editor’s note — This extends the period for a speculator to be able to flip a property without restrictions from the 90 days in Federal Housing Administration (FHA) regulations (which has been unwisely unenforced since January 2010) to 180 days, but applies to only high-cost loans controlled by §1632 of the Truth in Lending Act (TILA) (Section 32 loans), and only imposes the need for a second appraisal.

The fee due for the second appraisal cannot be charged to the Section 32 applicant.

Editor’s note — It is implicit the seller will have to pay for the second appraisal since lenders do not and the buyer cannot be charged for it.

A certified or licensed appraiser is someone who:

is certified or licensed by the state in which the property is located; and
prepares an appraisal report that meets the Uniform Standards of Professional Appraisal Practice and title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA).

The regulation of appraisals is the joint responsibility of the Federal Reserve Board of Governors (the Fed), the Comptroller of the Currency, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration Board, the Federal Housing Finance Agency (FHFA) and the Bureau of Consumer Financial Protection (BCFP).

The appraisal regulations may exempt a class of loans from these requirements if that is in the best interest of the public.

A free copy of each appraisal report involving a high-risk mortgage (Section 32 loan) will be handed to the homeowner or homebuyer at least three days before closing.

Lenders making any Real Estate Settlement Procedures Act (RESPA) loan must provide borrowers with a statement that any appraisal prepared for the mortgage is for the sole use of the lender, and that the borrower can have a separate appraisal conducted at their own expense.

A high-risk mortgage (Section 32 loan) is a RESPA loan:

that is not a qualified mortgage under TILA [For information on what constitutes a qualified mortgage, see the October 2010 first tuesday Legislative Watch.];
with an annual percentage rate (APR) exceeding the average prime offer rate in a comparable residential mortgage loan, as of the date the interest rate is set, by:

o 1.5% or more on a first mortgage with a principal equal to or less than the conforming loan limits set by Freddie Mac;

o 2.5% or more on a first mortgage with a principal more than the conforming loan limits set by Freddie Mac; and

o 3.5% or more on a second or other subordinate mortgage. [For more information regarding Dodd-Frank changes to Section 32 loans, see the October 2010 first tuesday Legislative Watch.]

Appraisal independence requirements

Truth in Lending Act

15 U.S. Code 1631 §129E

Added by H.R. 4173

It is unlawful to violate appraisal independence, including:

coercing, extorting, colluding with, instructing, bribing or intimidating any appraisal professional into appraising property at a value based on any factor other than the independent judgment of the appraiser;
mischaracterizing the appraised value of a property to secure a loan;
influencing or encouraging an appraiser to meet a targeted value for a property; and
withholding or threatening to withhold payment for an appraisal report or service.

This does not prohibit anyone with an interest in the transaction from asking an appraiser to:

consider additional appropriate property information, including comparable properties;
provide further details or explanations for the appraiser’s value conclusion; and
correct errors in the appraisal report.

No appraiser or appraisal company may have an interest, financial or otherwise, in the property being appraised.

Editor’s note — The Department of Real Estate (DRE) has issued a policy statement on these prohibited interferences. For more information, see the April 2009 first tuesday article, “What number do you need to get your deal done?” led to real estate price inflation.

If a lender is aware of a violation of appraisal independence, they are prohibited from using that appraisal report to make a loan, unless the lender has confirmed that the appraisal does not misrepresent the value of the property.

Lenders and their agents must compensate fee appraisers at a rate that is reasonable in the market area of the property being appraised.

A fee appraiser may charge a fee for complex assignments that reflects the increased time, difficulty and scope of the work performed.

A fee appraiser is someone not employed by the mortgage loan originator (lender) or appraisal management company engaging the appraiser and is:

a state-licensed or -certified appraiser who receives a fee for his services and is able to certify that his appraisal satisfies the Uniform Standards for Professional Appraisal Practice; or
a company that employs licensed or certified appraisers and receives a fee for the appraisals in accordance with the Uniform Standards for Professional Appraisal Practice.

The Home Valuation Code of Conduct was no longer effective when the Dodd-Frank Wall Street Reform and Borrower Protection Act took effect on July 21, 2010.

Any violation of the above regulations by a mortgage loan broker (MLB) when arranging or originating a Real Estate Settlement Procedures Act (RESPA) loan will result in a civil penalty assessed by the Federal Reserve Board of Governors (the Fed) of no more than $10,000 for each day the violation continues. Any subsequent violation with result in a civil penalty of no more than $20,000 for each day the violation continues.

BCFP authority to enforce TILA

Truth in Lending Act

15 U.S. Code 1604 §105

Added by H.R. 4173

Interpretation of these amendments by the Bureau of Consumer Financial Protection (BCFP) will be strongly considered by the courts when under review.

Appraisal Subcommittee responsibilities

Financial Institutions Reform, Recovery and Enforcement Act

12 U.S. Code 3341 §1112(b)

Added by H.R. 4173

Each federal financial institution’s regulatory agency, together with the Resolution Trust Corporation, is allowed to establish a threshold level to determine which Real Estate Settlement Procedures Act (RESPA) loans should be appraised by a licensed appraiser, and which should be appraised by a certified appraiser. The threshold amount will be used to determine which type of appraiser is required to perform appraisals in connection with RESPA loans, if:

the agency determines in writing that the threshold level does not represent a threat to the safety of financial institutions; and
the Bureau of Consumer Financial Protection (BCFP) agrees that the threshold level provides reasonable protection for homebuyers who purchase one-to-four unit single family residences (SFRs).

Appraisal Subcommittee responsibilities

Financial Institutions Reform, Recovery and Enforcement Act

12 U.S. Code 3332 §1103

Added by H.R. 4173

The Appraisal Subcommittee is responsible for:

monitoring the appraisal requirements established by states, including:

o a code of professional responsibility, for the certification and licensing of appraisers who appraise properties for Real Estate Settlement Procedures Act (RESPA) loan originations; and

o the registration and supervision of appraisal management companies; and

maintaining a national registry of appraisal management companies registered with and subject to the supervision of the state appraiser certifying and licensing agency, or are subsidiaries of a federal financial institution.

Appraisal Subcommittee member qualifications

Federal Financial Institutions Examination Council Act

12 U.S. Code 3310 §1011

Added by H.R. 4173

The Appraisal Subcommittee will consist of the heads of federal financial institution regulatory agencies. Each person must demonstrate competent knowledge of appraisal, the Bureau of Consumer Financial Protection (BCFP) and the Federal Housing Finance Agency (FHFA).

At least one person on the Appraisal Subcommittee must hold a license, certificate or professional designation in the appraisal industry.

Annual report about Appraisal Subcommittee

Financial Institutions Reform, Recovery and Enforcement Act

12 U.S. Code 3332 §1103(a)

Added by H.R. 4173

Congress will receive an annual report from the Appraisal Subcommittee no later than June 15 of each year that details:

the manner by which each function of the Appraisal Subcommittee has been carried out;
the activities of the Appraisal Subcommittee;
the results of all audits of state appraiser agencies; and
an account of disapproved actions and warnings, with a description of the conditions causing disapproval and what actions were taken to enforce compliance.

Appraisal Subcommittee activities

Financial Institutions Reform, Recovery and Enforcement Act

12 U.S. Code 3335 §1106

Added by H.R. 4173

The Appraisal Subcommittee can:

establish advisory committees;
hold hearings;
prescribe regulations after notice and opportunity for comment;
take testimony;
receive evidence;
provide information; and
perform research, when appropriate.

Any regulations prescribed by the Appraisal Subcommittee are limited to:

temporary practice;
national registry;
information sharing; and
enforcement.

In order to prescribe regulations, the Appraisal Subcommittee must establish an advisory committee of industry participants, including appraisers, lenders, consumer advocates, real estate agents and government agencies.

Appraisal standards

Financial Institutions Reform, Recovery and Enforcement Act

12 U.S. Code 3339 §1110

Added by H.R. 4173

The regulatory agency of each federal financial institution and the Resolution Trust Corporation will decide the standards for real estate appraisals in connection with federally-related transactions. The rules require, at a minimum that—

real estate appraisals are performed in accordance with generally accepted appraisal standards of the Appraisal Standards Board of the Appraisal Foundation;
appraisals are to be written appraisals; and
appraisals are subject to review for compliance with the Uniform Standards of Professional Appraisal Practice.

State-certified appraisals for RESPA loans

Financial Institutions Reform, Recovery and Enforcement Act

12 U.S. Code 3342 §1113

Added by H.R. 4173

In determining whether an appraisal in connection with a Real Estate Settlement Procedures Act (RESPA) loan is to be performed by a state-certified appraiser or by a state-licensed appraiser, each federal financial institutions regulatory agency must consider whether the transactions carry adequate financial or public policy importance to the United States to be appraised by a state-certified appraiser, except:

a state certified appraiser is required for all RESPA loans having a value of $1,000,000 or more; and
in the case of a one-to-four unit, single family residence, appraisals can be performed by state-licensed appraisers unless the size and complexity (the property, form of ownership, property characteristics or market conditions are atypical) requires a state-certified appraiser.

Editor’s note — A licensed appraiser is authorized to appraise any non-complex, one-to-four residential unit with a value under $1,000,000. A residential certified appraiser is authorized to appraise any one-to-four residential unit, regardless of value or complexity. A general certified appraiser is authorized to appraise all real estate. [For more information regarding the California Office of Real Estate Appraisers appraiser classifications, see the Appraisal Subcommittee Policy Statement.]

Lenders give homeowners a copy of all valuation estimates and appraisals

Equal Credit Opportunity Act

15 U.S. Code 1691 §701

Added by H.R. 4173

Lenders must give homeowners a copy of all property valuation estimates and appraisals connected to their application for a mortgage within three days prior to the loan closing, whether or not the mortgage application they received is granted.

Homeowners may choose to waive the three-day requirement.

Homeowners may be required to pay a reasonable fee to the lender for the appraisal.

Lenders must provide one free copy of each appraisal and valuation estimate to the homeowner. Homeowners must be notified in writing on receipt of their application that they will receive a free copy of each property valuation estimate and appraisal.

A property valuation estimate is any valuation of a home in connection with a lender’s decision to approve a mortgage loan.

Appraisal fee disclosure

RESPA §4

Added by H.R. 4173

If an appraisal is coordinated by an appraisal management company, the HUD-1 good faith estimate for the loan transaction in connection with the property being appraised must include:

the fee paid directly to the appraiser; and

the administration fee charged by the company paying the appraiser.The Government Accountability Office (GAO) will conduct a study on:

the impact of:

o appraisal methods, including:

§ the cost approach;

§ the comparative sales approach;

§ the income approach; and

§ any other reputable method.

o appraisal valuation models, including:

§ licensed and certified appraisers;

§ broker price opinions (BPOs); and

§ automated valuation models; and

o appraisal distribution channels, including:

§ appraisal management companies;

§ independent appraisal operations within mortgage originators; and

§ fee-for-service appraisers;

the Home Valuation Code of Conduct (HVCC); and
the Appraisal Subcommittee’s functions.

No later than July 21, 2011, or 12 months after the Dodd-Frank Wall Street Reform and Borrower Protection Act takes effect, the GAO must submit a study to the Committee on Banking, Housing and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives.

No later than October 19, 2010, or 90 days after the Dodd-Frank Wall Street Reform and Borrower Protection Act takes effect, the GAO must report on the status of the study, and give preliminary findings to the Committee on Banking, Housing and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives.

The study will include:

the prevalence of certain appraisal approaches;
the accuracy of those approaches;
whether or how those approaches contribute to price speculation;
the cost to consumers of those approaches;
the disclosure of fees in the appraisal process;
to what extent use of certain appraisal approaches may be an effect of a conflict of interest between lenders and appraisers;
the suitability of certain appraisal approaches;
how the HVCC affects lenders’ selection of appraisers;
how the HVCC affects state regulation of appraisers;
how the HVCC affects the quality, cost and ability to obtain appraisals; and
how the HVCC affects brokers, small businesses and homeowners.

No later than 18 months after regulations are enacted, the GAO must submit an additional study to the Committee on Banking, Housing and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives.

The study will include:

an examination of:

o the Appraisal Subcommittee’s monitoring and enforcement of appraisal requirements and standards, with a summary of the past ten years of enforcement actions;

o whether exemptions for federally-related appraisals needs to be revised; and

o whether additional means of data collection would benefit the Appraisal Subcommittee’s ability to perform; and

recommendations for administrative and legislative action.

Regulations of appraisal management companies

Financial Institutions Reform, Recovery and Enforcement Act

12 U.S. Code 3331 Title XI

Added by H.R. 4173

The following government agencies are to jointly establish the minimum requirements for the registration of appraisal management companies:

the Board of Governors of the Federal Reserve System (the Fed);
the Comptroller of Currency;
the Federal Deposit Insurance Corporation (FDIC);
the National Credit Union Administration Board;
the Federal Housing Finance Agency (FHFA); and
the Bureau of Consumer Financial Protection (BCFP).

The minimum regulations require that appraisal management companies:

register with the state appraiser certifying and licensing agency in whichever state the company operates;
be subject to supervision by the state appraiser certifying and licensing agency;
verify that federally related transactions use only licensed or certified appraisers;
require that appraisals organized by an appraisal management company comply with the Uniform Standards of Professional Appraisal Practice; and
ensure that appraisals are free from inappropriate influence and coercion.

States may include additional requirements.

If an appraisal management company is a subsidiary owned and controlled by a financial institution regulated by a federal financial institution regulatory agency, it is not required to register with the state.

An appraisal management company cannot be included in the national registry or be registered by a state if it is owned by someone who has had an appraiser license or certificate refused, denied, cancelled, surrendered in lieu of revocation or revoked.

Anyone who owns more than 10% of an appraisal management company must be of good moral character and submit to a background check by the state appraiser certifying and licensing agency.

The Appraisal Subcommittee is responsible for determining regulations regarding the payment of the annual registry fee.

Thirty-six months after the regulations take effect, an appraisal management company is prohibited from performing any service for a Real Estate Settlement Procedures Act (RESPA) loan unless the company is registered with the state. The Appraisal Subcommittee can give a 12-month extension to a state for the registration and supervision of appraisal management companies if they find that the state is making substantial progress in establishing registration and supervision.

State appraiser certifying and licensing agency

Financial Institutions Reform, Recovery and Enforcement Act

12 U.S. Code 3346 §1117

Added by H.R. 4173

A state can establish a state appraiser certifying and licensing agency to register and supervise appraisal management companies, as well as add information about them to the national registry.

Appraisal Management Company

Financial Institutions Reform, Recovery and Enforcement Act

12 U.S. Code 3350 §1121

Added by H.R. 4173

An appraisal management company is a third party that oversees a network of more than 15 certified or licensed appraisers in one state, or more than 25 nationally in a given year, in order to:

recruit, select and retain appraisers;
contract with licensed and certified appraisers to perform appraisal assignments;
manage the appraisal process, including:

o receiving orders and reports;

o submitting completed reports to creditors and underwriters;

o collecting fees from creditors and underwriters; and

o reimbursing appraisers for services; and

review and verify the work of appraisers.

State requirements for appraiser certifying and licensing agency

Financial Institutions Reform, Recovery and Enforcement Act

12 U.S. Code 3338 §1109

Added by H.R. 4173

States that have established an appraiser certifying and licensing agency will:

report the issuance and renewal of licenses and certifications, sanctions, disciplinary actions, revocations and suspensions to the national registry of the Appraisal Subcommittee;
report any action taken as supervisor to appraisal management companies or third-party appraisers, including investigations and disciplinary action; and
collect:

o a $40 annual registry fee from anyone who performs appraisals in federally-related transactions;

o a $25 fee multiplied by the number of appraisers from an appraisal management company that has been in existence for more than one year; or

o a $25 fee multiplied by an appropriate number determined by the Appraisal Subcommittee from an appraisal management company that has been in existence for less than one year.

The Appraisal Subcommittee can adjust the registry fee up to a maximum of $80 per year. The registry fee will be considered for adjustment every five years.

Money collected by the Appraisal Subcommittee will be used to:

make grants for appraiser and certifying licensing agencies to support the compliance of:

o complaint investigations and appraiser enforcement; and

o submitting data to the national appraisal registry; and

report to certifying and licensing agencies when a license or certification is surrendered, revoked or suspended.

Money used by the Appraisal Subcommittee for these purposes cannot exceed 75% of the fiscal year total.

Definition of ‘State-licensed appraiser’

Financial Institutions Reform, Recovery and Enforcement Act

12 U.S. Code 3345 §1116

Added by H.R. 4173

A state-licensed appraiser is an individual who meets or exceeds the minimum criteria of the Appraisal Qualifications Board. Anyone who has the title “Trainee Appraiser” or “Supervisory Appraiser” must meet or exceed the minimum requirements of the Appraiser Qualifications Board.

Responsibilities of the Appraisal Subcommittee

Financial Institutions Reform, Recovery and Enforcement Act

12 U.S. Code 3347 §1118

Added by H.R. 4173

The Appraisal Subcommittee is responsible for monitoring the state appraiser certifying and licensing agencies to determine if the agency:

follows correct procedure in regard to policy, practice, funding and staffing;
processes complaints and investigations in a reasonable amount of time;
takes appropriate disciplinary action;
has an effective regulatory program; and
reports complaints and takes disciplinary action in a timely manner.

The Appraisal Subcommittee has the authority to remove an appraiser or appraisal management company from the national registry temporarily (no more than 90 days) while an action on licensing, certification, registration or disciplinary proceedings is pending. They also have authority to impose sanctions against any state licensing agency that fails to effectively regulate appraisers.

Editor’s note — California appraisal is regulated by the California Office of Real Estate Appraisers.

Appraisal of federally-related transactions

Financial Institutions Reform, Recovery and Enforcement Act

12 U.S. Code 3351 §1122

Added by H.R. 4173

A certified or licensed appraiser cannot appraise a Real Estate Settlement Procedures Act (RESPA) loan property in a state where he is not certified or licensed unless the appraiser certifying or licensing agency in the state where the appraiser practices has a policy to allow reciprocal license for someone from another state when:

the out-of-state appraiser is in compliance with the state’s program; and
the license held by the appraiser is from a state with a program in compliance with federal regulations.

When giving the title of “professional appraiser” to an individual, criteria that must be taken into account are:

education;
experience;
sample appraisals;
references from prior clients; and
membership in a nationally recognized professional appraisal organization (lack of membership is not enough to bar someone from being considered).

The Appraisal Subcommittee is responsible for monitoring each state appraiser certifying and licensing agency in order to:

determine if the agency’s policies, practices and procedures are appropriate; and
judge the soundness of the laws, regulations and policies adopted by the state.

If an Appraisal Complaint National Hotline does not yet exist six months after the enactment of these amendments, the Appraisal Subcommittee is responsible for establishing one with a toll-free phone number and an email address.

Automated valuation models

Financial Institutions Reform, Recovery and Enforcement Act

12 U.S. Code 3331 Title XI

Added by H.R. 4173

An automated valuation model (AVM) is a computerized model used to determine the collateral worth of a mortgage secured by a homeowner’s primary real estate.

Automated valuation models must meet quality standards designed to:

ensure confidence in the estimates produced;
protect against manipulation of data;
avoid conflicts of interest; and
require random sample testing and reviews.

Regulations for automated valuation models will be determined by:

the Federal Reserve Board of Governors (the Fed);
the Comptroller of the Currency;
the Federal Deposit Insurance Corporation (FDIC);
the National Credit Union Administration Board;
the Federal Housing Finance Agency (FHFA); and
the Bureau of Consumer Financial Protection (BCFP).

Compliance of financial institutions is enforced by their primary federal supervisor.

Compliance of others is enforced by the Federal Trade Commission (FTC).

A broker price opinion (BPO) is an estimate prepared by a real estate broker or sales agent detailing the probable selling price of a particular property. It includes detail about the property’s:

condition;
market;
neighborhood; and
comparable sales.

A BPO cannot be based on an automated valuation model, and cannot be used as the primary basis for determining the value of property.

The impound account 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.

These amendments affect mortgage impound accounts and became effective July 21, 2010, unless established as authorized by regulations. The Bureau of Consumer Financial Protection (BCFP) will prepare and 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, RESPA loans are also now classified by TILA disclosure law as either “qualified mortgages” or “non-qualified mortgages” (Section 32 high-cost loans), since RESPA loans must meet new TILA disclosure standards. Loans exclusively funding business, investment or farming activities, no matter the type of security, are not RESPA loans and thus these rules do not apply to such loans.

Reported by Jeffery Marino

TILA amendments to impound accounts for RESPA mortgages
15 U.S. Code 1631 et seq. §129C
Added by H.B. 4173
Effective: July 21^st 2010

A lender who makes a Real Estate Settlement Procedures Act (RESPA) loan, other than a revolving line of credit or a reverse mortgage and secured by a first trust deed on the homeowner’s principal residence, is required to establish an impound account before closing the loan providing for the homeowner to deposit property taxes, insurance premiums and any other periodic payment associated with the property or loan terms when:

an impound account is required by state or federal law;
the loan is insured by a government agency;
the annual percentage rate (APR) on the loan exceeds the prime offer rate by 1.5 percentage points or more, in cases where the principal on the loan does not exceed the maximum limitation set forth by the Federal Home Loan Mortgage Corporation (Freddie Mac); or
the annual percentage rate (APR) on the loan exceeds the prime offer rate by 2.5 percentage points or more, in cases where the principal on the loan exceeds the maximum limitation set forth by Freddie Mac.

A lender is exempted by the Federal Reserve Board of Governors (the Fed) from the requirement to establish an impound account for the borrower if he:

operates predominately in rural or underserved areas;
together with affiliates, has a total amount of loan originations that do not exceed a limit to be set by the Fed; and
keeps its mortgage loan originations in portfolio.

Impound accounts will be maintained for at least five years after the loan is originated.

The minimum five-year period for impound account maintenance may be shortened if:

the borrower has enough equity in the property to no longer require private mortgage insurance; or
the loan has been paid off.

The minimum five-year period for impound account maintenance may be extended if:

the loan is delinquent; or
legal obligations on the loan have not been complied with.

Impound accounts do not need to be established for loans secured by shares in a cooperative. Properties subject to membership in a homeowner’s association (HOA) which is obligated to provide a master insurance policy are not required to deposit these insurance premiums into the escrow account.

The lender must pay the borrower interest in accordance with applicable state or federal law for any amount held in the impound account.

Any lender who establishes an impound account on a RESPA loan must disclose the following information to the borrower at least three business days before closing of the loan:

the fact that an impound account will be established upon closing of the loan;
the amount required as a deposit at closing to fund the impound account;
the amount, in the first year after the closing of the loan, of the estimated taxes and insurance premiums to be deposited in the impound account;
the estimated monthly amount payable to the impound account; and
if the borrower chooses to terminate the impound account, the borrower will be responsible for making all payments on taxes and insurance premiums.

TILA amendments

Disclosure notice given to borrowers who waive impounding

15 U.S. Code 1631 et seq. §129D
Added by H.B. 4173
Effective: July 21^st, 2010

If a borrower provides written notice waiving the right to have an impound account opened in connection with their loan, the lender must provide a written disclosure advising the borrower of the assumed responsibilities and implications of waiving their right. The disclosure statement will include:

information concerning any fees or costs that may apply to the non-establishment of the impound account;
a statement advising the borrower he is responsible for paying the non-impounded items; and
an explanation of the consequences of any failure to pay the non-impounded items, including the possibility of the placement of insurance by the lender.

RESPA amendments

12 U.S. Code 2605
Added by H.B. 4173
Effective: July 21^st, 2010

A servicer of a Real Estate Settlement Procedures Act (RESPA) mortgage may not:

acquire hazard insurance unless the borrower fails to comply with loan contract requirements to obtain all appropriate property insurance;
charge fees for responding to valid, written requests;
fail to take timely action to respond to a borrower’s request to correct errors relating to payments, final balances, avoiding foreclosure or standard servicer’s duties; or
fail to respond within 10 business days to a borrower’s request for the contact information of the lender who owns the loan.

In order for a loan servicer to acquire hazard insurance, the servicer must establish a reasonable basis for obtaining insurance by meeting all the following requirements:

the servicer must send a written notice to the borrower containing:
- a reminder of the borrower’s obligation to obtain hazard insurance;
- a statement that the borrower does not currently have insurance;
- instructions for the borrower to demonstrate that they have proper insurance; and
- a statement that the servicer is permitted to force the borrower to obtain hazard insurance;
- the servicer must send a second written notice no less than 30 days after mailing the first written notice;
- the servicer has not received from the borrower any demonstration that they are covered under a hazard insurance plan; and
- a servicer must accept any reasonable form of written documentation from a borrower proving the borrower has obtained hazard insurance.

A servicer must cancel hazard insurance it acquired within 15 days of receiving notice that the borrower has obtained hazard insurance.

A servicer must refund the borrower any fees paid for insurance the lender acquired while the borrower’s hazard insurance policy was also in effect.

A servicer may concurrently provide notice of a lack of flood insurance to a borrower with the notice about the need for hazard insurance.

Impound amounts in repayment analysis

15 U.S. Code 1638(b) §128(b)
Added by H.B. 4173
Effective: July 21^st, 2010

A repayment analysis for a mortgage loan which is secured by the real estate used as the borrower’s principal residence must include a total of all payments the borrower is to pay into an impound account.

The amount taken into account in the repayment analysis must include the property taxes of the property used to secure the loan.

This law requires an LLC that reports to the IRS as a corporation to make contributions to the state Unemployment Fund.

Reported by Jeffery Marino

Corporate LLCs must contribute to the Unemployment Fund

Unemployment Insurance Code §§ 621, 623, 928.7 and 13009
Amended and added by S.B. 1244
Effective: January 1, 2011

The California Unemployment Insurance Code now defines members of a limited liability company (LLC) reporting as a corporation for federal income tax purposes as employees. Members of an LLC treated as a partnership for federal income tax purposes are not considered employees.

The California Unemployment Insurance Code now defines the taxable income of members of a limited liability company (LLC) reporting as a corporation for federal income tax purposes as wages. The taxable income of members of an LLC treated as a partnership for federal income tax purposes are not considered wages.

Thus, a managing member of an LLC reporting as a corporation must withhold taxes and make appropriate contributions to the Unemployment Fund for all compensation paid to the members of an LLC reporting as a corporation.

Editor’s note: Prior to the passing of this bill, the California Unemployment Insurance Code did not allow LLCs reporting as corporations to withhold taxes from the taxable wages of such LLC members. This resulted in these LLCs having full responsibility for paying their federal unemployment insurance tax (FUTA). This law conforms the California Unemployment Insurance Code to the federal code so LLCs reporting as corporations may offset their federal unemployment insurance tax (FUTA) costs and avoid full FUTA liability.

California LLCs formed to purchase real estate almost always report as partnerships, and are thus unaffected by this bill. first tuesday reports this merely to disambiguate the legislative change.

The following additions clarify a court clerk’s authorization to allow access to residential unlawful detainer court records and additional disclosure requirements for filing unlawful detainer actions after certain types of sales.

Reported by Kelli Galippo

Access to court records involving an unlawful detainer

CA Code of Civil Procedure §§1161.2, 1161a
Amended by S.B. 1149
Effective: January 1, 2011

The following additions to CCP §1161.2 cover unlawful detainer (UD) actions by any owner who acquired title on a sale:

to satisfy a judgment debtor;
in a judicial foreclosure, called a sheriff’s sale;
in a non-judicial foreclosure, called a trustee’s sale ;
by a seller who remains in occupancy after the sale; or
by foreclosure procedures for manufactured homes, mobilehomes, truck campers or floating homes.

For unlawful detainer actions, real estate also includes:

manufactured homes;
mobilehomes;
truck campers; or
floating homes.

If a residential landlord acquiring title under these conditions receives a judgment against all named tenants in a UD trial within 60 days after filing the UD complaint, any person may access the court records pertaining to the UD action.

However, when a landlord acquiring title under these conditions does not receive a judgment against all named tenants in a UD trial within 60 days after filing the UD complaint, the only individuals who may access the court’s UD records in the action include:

a party to the action;
an attorney of a party to the action;
a person who provides the clerk with the names of at least one landlord, one tenant and the address of the residential unit involved in the action;
a resident of the premises who provides the clerk with the name of one of the parties, the case number or proof of residency; and
any other person by order of the court.

Editor’s note — This code specifically protects tenants or prior owners who were in occupancy at the time of a property’s foreclosure sale and are now being evicted.

CA Code of Civil Procedure §1161c
Added by S.B. 1149
Effective: January 1, 2011 – January 1, 2013

If a property is sold at a foreclosure sale and, within one year after the sale, the buyer who acquired title at the foreclosure sale (owner-by-foreclosure) serves a tenant who occupied the property at the time of the foreclosure sale with any notice to quit in less than 90 days, the following cover sheet must be attached, in at least 12-point type, to the notice to quit:

Notice to Any Renters Living At

[street address of the unit]

The attached notice means that your home was recently sold in foreclosure and the new owner plans to evict you.

You should talk to a lawyer NOW to see what your rights are. You may receive court papers in a few days. If your name is on the papers it may hurt your credit if you do not respond or simply move out.

Also, if you do not respond within five days of receiving the papers, even if you are not named in the papers, you will likely lose any rights you may have. In some cases, you can respond without hurting your credit. You should ask a lawyer about it.

You may have the right to stay in your home for 90 days or longer, regardless of any deadlines stated on any attached papers. In some cases and in some cities with a “just cause eviction law,” you may not have to move at all. But you must take the proper legal steps in order to protect your rights.

How to Get Legal Help

If you cannot afford an attorney, you may be eligible for free legal services from a nonprofit legal services program. You can locate these nonprofit groups at the California Legal Services Web site (www.lawhelpcalifornia.org), the California Courts Online Self-Help Center (www.courtinfo.ca.gov/selfhelp), or by contacting your local court or county bar association.

The cover sheet will not be required if:

the tenancy is terminated by unlawful detainer;
the owner-by-foreclosure and the tenant have entered into a written rental agreement, lease or reinstatement of a preexisting rental agreement or lease; or
the tenant receiving the notice was not a tenant at the time of the foreclosure sale.

However, if the notice to quit specifies a date to vacate 90 days or more after the notice is served, no cover sheet is required, provided that the text of the cover sheet, other than the heading and opening paragraph, is made a part of the notice in at least 10-point type.

CA Code of Civil Procedure §1166
Amended by S.B. 1149
Effective: January 1, 2011

In a residential unlawful detainer (UD) action, the owner acquiring title at any of the following types of sales will state in the caption of the UD complaint, “Action based on Code of Civil Procedure Section 1161a”:

a sale to satisfy a judgment debtor;
a sale of real estate in a judicial foreclosure, called a sheriff’s sale;
a sale of real estate in a non-judicial foreclosure, called a trustee’s sale;
a sale by the person charged (seller) with unlawful detainer; or
a sale by existing foreclosure procedures for manufactured homes, mobilehomes, truck campers or floating homes.