Articles Posted in Real Estate

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Mortgage discrimination is against the law. The federal Equal Credit Opportunity Act (ECOA) makes it illegal for a creditor to discriminate against an applicant on the basis of race, color, religion, national origin, sex, marital status, age, or whether an individual receives public assistance. Notably, if an adverse action is taken against an applicant, even if the applicant is not a member of a protected class listed above, the applicant is entitled to a statement of reasons for the adverse action. In this context, an “adverse action” includes the following: (1) denial or revocation of credit, (2) a change in the terms of an existing credit arrangement, or (3) a refusal to grant credit in substantially the same amount or terms requested. Importantly, a creditor is not required to provide notice of the “adverse action” if the applicant is delinquent or otherwise in default.

A recent decision by the Court of Appeals for the 9th Circuit ruled that a lender who forgot they modified a loan and began foreclosure might be in violation of the Equal Credit Opportunity Act. More specifically, in Schlegel v. Wells Fargo Bank NA, the borrowers took out a $157,000 loan in 2009. The loan, secured by their home, was assigned to Wells Fargo. The borrowers thereafter went into default and filed bankruptcy in 2010.

At that time, Wells Fargo offered to extend the term of the mortgage. The loan modification was then approved by the bankruptcy court and became effective July 1, 2010. Despite all of this, before the first payment was due, and only 10 days after the bankruptcy charge was entered, Wells Fargo sent a default notice threatening to accelerate the full balance of the loan. When the Schlegels received the notice, they contacted the bank, which told them to proceed with the loan modification.
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Lockaway Storage v. County of Alameda

On May 9, 2013, the California Court of Appeal issued a ruling in Lockaway Storage v. County of Alameda with positive implications for property developers. More specifically, the court’s decision may make it easier for developers to allege damages caused by project delays.

In Lockaway, plaintiff Lockaway Storage purchased an 8.45 -acre parcel of land in Alameda County in May 2000. A year prior, the County approved a conditional use permit (“CUP”) for the property that authorized its use a storage facility for recreational vehicles and boats. However, in November 2000, only 6 months after Lockaway purchased the property, voters in Alameda County passed Measure D, which prohibited the development of a storage facility in the area where Lockaway’s property was located, except by public vote.

Since Measure D contained a grandfather clause providing that the ordinance did not affect existing uses that were legal at the time the ordinance became effective, Lockaway continued to the develop its property. During this time, the County planning department assured Lockaway that the ordinance did not prevent Lockaway’s development plans. Nonetheless, despite the grandfather clause and the County’s repeated assurances, on August 30, 2002 the County planning department reversed course and informed Lockaway that it had to obtain a new CUP by September 22, 2002 to proceed with its project. The County denied Lockaway’s extension request, and when Lockaway did apply for a new CUP before the deadline under protest, it was denied. By this time, Lockaway had spent $800,00 to purchase the property and another $400,000 on the storage facility project.

Following the County’s denial, Lockaway filed a lawsuit against Alameda County, alleging that the County’s conduct amounted to temporary taking under the Fifth Amendment. The trial court agreed and found that the County’s conduct constituted a temporary taking, meaning the government took private property for public use without just compensation.

The Court of Appeal affirmed, finding that the Lockaway project was exempt from the use restrictions of Measure D, and therefore the suspension of Lockaway’s project amounted to a constitutional taking. More specifically, the court found that, even though Lockaway’s property was not rendered useless after the County refused to allow Lockaway to continue the project, the County’s decision had a “devastating impact on Lockaway” and deprived the company of “a meaningful opportunity to protect its property rights.”

This decision shows a potential shift towards overreaching growth control measures by the government and may lead to more court judgments in favor of property owners for temporary and partial damages due to property as a result of subjective actions by city and county planning departments.
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It is well known that in the years leading up to the financial crisis, too many mortgages were made to consumers without taking into account a consumer’s ability to repay the loans, contributing to a mortgage crisis that led to a serious recession in the United States.

In response to lessons learned from the financial crisis, the U.S. government implemented a variety of rules and regulations hoping to prevent future crises, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) passed by Congress in 2010. The Dodd-Frank Act requires that for residential mortgages, creditors must make a reasonable and good faith determination based on verified and documented information that the consumer has a reasonable ability to repay the loan.

Most recently, in January 2013, the Consumer Financial Protection Bureau (CFPB)–the agency charged with implementing the Dodd-Frank Act–issued a final rule, referred to as the Ability-to-Repay/Qualified Mortgage rule (“ATR/QM Rule”). The rule, which will go into effect January 2014, not only forces mortgage lenders to consider a consumers’ ability to repay home loans before extending them credit, but also establishes a new category of loans that have more stable features called Qualified Mortgages (“QMs”). The new measures do not set minimum down payment amounts or credit score requirements. Finally, although the ATR/QM Rule applies to most mortgage loans, it excludes certain types of loans, including home equity lines of credit, timeshare plans, reverse mortgages, and temporary loans.

Ability-to-Repay Rule

The Ability-to-Repay rule has a variety of features, including the following:

• To qualify for a particular loan, a consumer has to have sufficient assets or income to pay back the loan;
• Lenders must determine a consumer’s ability to repay both the principal and the interest over the long term–not just during the introductory period; and
• A potential borrower must supply verifiable financial information to the lender (e.g., W-2, pay stubs)

Specifically, the lender must generally consider the following information:

1) Current or reasonably expected income or assets;
2) Current employment status;
3) The monthly payment for the mortgage;
4) The monthly payment on any other mortgage loans received at the same time;
5) The monthly payment for other mortgage-related expenses (e.g., property taxes)
6) Other debts (e.g., alimony and child support);
7) Monthly debt payments, including the mortgage, compared to consumer’s monthly income (“debt-to-income ratio”); and
8) Credit history

Qualified Mortgage Rule

In addition to the new guidelines, the final rule also creates a new category of loans, Qualified Mortgages, where borrowers would be the most protected. A QM cannot include risk features, such as extending beyond 30 years, nor can it include exotic terms like interest-only payment or negative-amortization payments where the principal amount increases. Moreover, a mortgage will only qualify as a QM if the borrower’s total monthly debt (including car loans, student loans, credit card debt, etc.) is less than 43% of the borrower’s monthly pre-tax income. Finally, mortgages in which fees and points cost more than 3% will not be considered QMs. Temporarily, QMs can also be loans that can be bought by Fannie Mae or Freddie Mac, or insured by certain government agencies, such as the Federal Housing Administration.
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In September 2012, Gov. Jerry Brown signed Senate Bill 1186 into law, which attempts to reform California’s disability access laws. The law is aimed at helping businesses comply with the American Disabilities Act (“ADA”) and hopes to curb ADA lawsuits against small businesses in California. In addition, according to Senate President Pro Tem Darrell Steinberg, D-Sacramento, one of the bill’s sponsors, SB 1186 will provide incentives for business owners to fix the violations and enhance accessibility. Though the new legislation tightens disability access laws to further reduce past abuses and protect business and property owners against frivolous lawsuits, the law also imposes additional obligations on building property owners and tenants. Below is a summary of some of the provisions contained within SB 1186.

Demand Letters and Advisories

Effective January 1, 2013, SB 1186 places limits on the contents of demand letters sent by lawyers to property owners or tenants alleging that a business premise is not fully accessible. First, pursuant to the new law, lawyers are prohibited from sending “demand for money” letters to business owners or tenants, requesting payment from business owners in exchange for an agreement to not file a lawsuit. These demand letters must also state sufficient facts for a “reasonable person” to identify the basis of the claim. More specifically, these letters must:

• State the particular barrier their client faced;
• Indicate the date the barrier was encountered;
• Describe how the barrier interfered with their client’s full access or deterred them from visiting the business;
• Include the attorneys’ California State Bar Number; and
• Be sent to both the State Bar and the California Commission on Disability Access

In addition to any demand letter sent, SB 1186 also requires attorneys to send an advisory letter, listing any alleged construction-related violations, at least 30 days before filing a lawsuit. The Judicial Council will update a form that may be used by attorneys to comply with the new advisory requirements by July 1, 2013. In the meantime, attorneys will likely send these advisories in the form of a letter. These advisories must provide certain information to property owners, including but not limited to the owner’s legal rights and obligations, websites where information can be found on how to comply with disability laws, and a statement advising the owner to seek advice of legal counsel and contact their insurance carrier.

If you receive a demand letter or advisory, it is important to make sure that the letter satisfies each of these requirements. If an attorney fails to comply, he or she may be subject to disciplinary action by the State Bar of California.
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On January 29, 2013, the California Building Standards Commission announced the adoption of the 2013 California Building Standards Code (“CBSC” or “Code”). By law, the public is given 180-days (six months) to review the new code before it goes into effect. Although the new code will not be published until July 1, 2013 and does not go into effect until January 1, 2014, California property owners can get a head start now by learning about some of these changes early. Since the changes to the CBSC will impact both newly constructed buildings and homes, and additions and alterations to older buildings, California commercial and residential property owners will likely be affected by these changes.

The adoption of the 2013 Code comes after a multi-state agency and stakeholder update of the 2010 building codes. Specifically, the Department of Housing and Community Development, Division of the State Architect, Office of Statewide Health Planning and Development, Office of the State Fire Marshal, Department of Public Health, the California Energy Commission, industry stakeholders and members of the public all participated in the development of the new code. In making these revisions, the California Building Standards Commission Director, Jim McGowan, stated that the Commission’s objective is “to produce a practical building code that ensures public safety first and foremost while implementing the most efficient technology available to conserve the state’s natural resources and energy use”. He added, “California’s building code is applied to virtually every commercial and residential structure in the state.”

Among the important updates to the 2013 Code:

  • An extensive update of California’s Energy Code;
  • Updated California Green Building Code–CALGreen–requirements for nonresidential building alterations and additions;
  • Division of the State Architect’s adoption of the 2010 Americans with Disabilities Act standards with California amendments;
  • New plumbing code provisions pertaining to greywater and rainwater catchments.

Updates to California’s Energy Code and California Green Building Code

The updated standards will improve upon the 2008 California Energy Code Standards and will implement a number of state energy policy directives, including but not limited to, the following:

  • GreenHouseGas (GHG) considerations, since building are second only to transportation in producing GHG emissions. Legislation and executive orders have established goals of reducing GHG emissions to 1990 levels by 2020 and to 80 percent of 1990 levels by 2050.
  • New building standards must achieve “net zero energy” levels by 2020 for residential property and by 2030 for commercial buildings.
  • The Green Building Standards Code calls for graded efficiency levels of 15 percent and 30 percent more rigorous than the previous mandatory standards. Although the goals are merely voluntary on a statewide basis, local jurisdictions may elect to adopt the Green Building Standards Code as mandatory at the local level.

In addition, the changes emphasize several essential areas to improve the energy efficiency not only of new constructions, but also additions and alterations of existing buildings. These changes will help reduce electricity demand reductions during critical peak periods and enable simple and efficient future solar system installations.

Some of the most important changes to the standards affecting efficiency are those proposed for windows, the building envelope (wall, ceiling and floor) insulation and the testing of HVAC systems. Moreover, changes for all building types include mandatory requirements for windows and building envelopes.
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The California Department of Real Estate (“DRE”) has issued an internal directive to start broker office surveys (“BOS”) in 2013. A BOS will include unannounced and unscheduled visits to brokers’ officers and an audit of random files that the DRE requests. Although the California DRE has always conducted random audits, they were previously scheduled in advance so that the broker had time to get files and records organized. However, with this change, brokers will now need to be ready at a moment’s notice for a surprise visit from the DRE.These visits are meant to ensure a broker’s residential real estate business activities are in compliance with the laws and regulations administered by the DRE. If you are a broker, you should anticipate that the DRE will ask to see records from various transactions or random files if they visit. All brokers need to be prepared for a potential BOS as they were scheduled to begin at the start of 2013.

According to the DRE, the most common violations found during a BOS, include violations relating to the following:

• Licensing Compliance
• Trust Account Compliance
• Supervision
• Required Disclosures
• Record Keeping Continue reading

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