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For a total list of all the real-estate laws digested by first tuesday for the 2008 legislative session, click here.

Reported by Bradley Markano:

§1031 intermediaries/accommodators now regulated by California law

Financial Code §51000
Added by S.B. 1007
Effective: January 1, 2009

An intermediary in a §1031 reinvestment plan is any individual or entity who:

  • solicits business as an intermediary for §1031 reinvestment plans;
  • agrees to act as an accommodator to receive and hold the net proceeds due the seller on a sale when the accommodator has no right to benefit from his possession of the funds;
  • agrees to take title to a seller’s property and transfer a replacement property to the seller; or
  • takes title to a replacement property as an exchange accommodation titleholder.

These §1031 intermediary rules do not apply to:

  • a taxpayer seeking to avoid recognition of profit on the sale of like-kind property;
  • a financial institution which accepts deposits of §1031 funds but does not act as an intermediary in §1031 reinvestment plans;
  • a title insurer, title company, or escrow company which does not act as an intermediary in §1031 transactions;
  • an individual who teaches professionals about §1031 transactions or trains §1031 intermediaries;
  • a qualified intermediary working outside of California; or
  • an entity used by an exchange accommodation titleholder to hold title to property in CA.

Intermediary’s notice of transfer of intermediary’s ownership

Financial Code §51001
Added by S.B. 1007
Effective: January 1, 2009

A §1031 intermediary must notify all sellers who have entrusted him with funds or property in a §1031 transaction within 10 business days following any transfer of more than 50% of the intermediary’s assets or ownership interests.

Intermediaries to post bonds, deposits, or letters of credit with a financial institution

Financial Code §51003
Added by S.B. 1007
Effective: January 1, 2009

§1031 intermediaries must do one of the following:

  • maintain at least $1,000,000 in fidelity bonds executed by an authorized California insurer;
  • deposit at least $1,000,000 of their own money in cash, securities, or irrevocable letters of credit in an interest-bearing deposit or money market account; or
  • deposit all exchange funds in a qualified escrow account or trust, under the condition that any withdrawals require written authorization from the §1031 intermediary and the seller.

Claims against a §1031 intermediary

Financial Code §51005
Added by S.B. 1007
Effective: January 1, 2009

A person may file a claim on a §1031 intermediary’s bonds, deposits, or letters of credit if he sustains money losses due to the intermediary’s failure to:

  • notify a seller of a transfer of interest;
  • maintain errors and omissions insurance;
  • properly invest exchange funds; or
  • engage in honest business practices.

§1031 intermediaries must have errors and omissions insurance

Financial Code §51007
Added by S.B. 1007
Effective: January 1, 2009

In addition to maintaining $1,000,000 in bonds, deposits, or letters of credit, a §1031 intermediary must do one of the following:

  • maintain an errors and omissions insurance policy of at least $250,000; or
  • deposit with a financial institution a minimum of $250,000 in cash, securities, or irrevocable letters of credit in an interest-bearing deposit or money market account.

Regulations for the management of exchange funds

Financial Code §51009
Added by S.B. 1007
Effective: January 1, 2009

An intermediary’s investment of §1031 funds must preserve the liquidity and principal of the funds. §1031 funds may not be:

  • commingled with the intermediary’s operating funds; or
  • transferred to any entity affiliated with the intermediary, other than a financial institution. This does not include the transfer of funds from an intermediary to an exchange accommodation titleholder under a §1031 contract.

§1031 funds are not subject to execution or attachment on any claim against the intermediary. An intermediary may not keep money in any account in a seller’s name unless the money was originally entrusted to the intermediary by that seller.

Restrictions upon §1031 intermediaries

Financial Code §51011
Added by S.B. 1007
Effective: January 1, 2009

§1031 intermediaries may not:

  • make false statements or misrepresentations regarding like-kind transactions;
  • fail to account for any money or property held in a §1031 transaction;
  • engage in fraudulent or dishonest conduct;
  • commit any crime involving fraud, misrepresentation, deceit, embezzlement, misappropriation of funds, robbery, or theft; or
  • fail to deliver property or funds to a client, unless the failure is due to circumstances beyond the intermediary’s control.

Date of expiration for Ch.708

Financial Code §51015
Added by S.B. 1007
Effective: January 1, 2009

This chapter expires January 1, 2014 unless otherwise deleted or extended.

Notice of proximity to farm land must be included with notice of intention to sell or lease subdivided land

Business and Professions Code §11010
Amended by A.B. 2881
Effective: January 1, 2009

Subdividers must file an application for a public report with the Department of Real Estate (DRE) before offering to sell or lease parcels of land in their subdivisions. A notice of intention to sell must be attached to this application.

The notice of intention to sell must state whether the property is located within one mile of a parcel of real estate designated “prime farmland,” “Farmland of Statewide Importance”, Unique Farmland,” “Farmland of Local Importance,” or “Grazing Land” on the current “Important Farmland Map” issued by the California Department of Conservation, Division of Resource Protection. This information is available on the county-level GIS map data available on the Farmland Mapping and Monitoring Program website.

If the land to be sold includes residential property located within one mile of a designated farmland area, the notice of intention to sell must include the following statement:

NOTICE OF RIGHT TO FARM

This property is located within one mile of a farm or ranch land designated on the current county-level GIS “Important Farmland Map,” issued by the California Department of Conservation, Division of Land Resource Protection. Accordingly, the property may be subject to inconveniences or discomforts resulting from agricultural operations that are a normal and necessary aspect of living in a community with a strong rural character and a healthy agricultural sector. Customary agricultural practices in farm operations may include, but are not limited to, noise, dust, light, insects, the operation of pumps and machinery, the storage and disposal of manure, bee pollination, and the ground or aerial application of fertilizers, pesticides, and herbicides. These agricultural practices may occur at any time during the 24-hour day. Individual sensitivities to those practices can vary from person to person. You may wish to consider the impacts of such agricultural practices before you complete your purchase. Please be advised that you may be barred from obtaining legal remedies against agricultural practices conducted in a manner consistent with proper and accepted customs and standards pursuant to Section 3482.5 of the Civil Code or any pertinent local ordinance. [See first tuesday Form 318]

Notice of proximity to farmland must be included in Natural Hazards Disclosure Statement

Civil Code §1103.4
Amended by A.B. 2881
Effective: January 1, 2009

An expert preparing a Natural Hazards Disclosure statement (NHD) must determine whether the property is located within one mile of a designated farmland area. If the property is within one mile of such an area, the statement must include a Notice of Right to Farm. [See first tuesday Form 318].