New California Real Estate Laws for 2015
Here is a quick recap of the new 2015 real estate laws effecting owners, residents, real estate agents, and brokers. How these laws effect you, your business interests, your family, landlords, and tenants vary greatly depending on your individual circumstances, but please read and make yourself aware of the basics. For detailed analysis or any questions don’t hesitate to give me a call 1-650-464-3797 or send me an email to [email protected].
Tax Exclusions for Mortgage Debt Forgiveness
This law extends California’s exclusions of taxation of mortgage debt forgiveness for qualified principal residence indebtedness in partial conformity with the federal Mortgage Forgiveness Debt Relief Act of 2007. Qualified principal residence indebtedness is limited to $800,000 ($400,000 for taxpayers filing separately). Forgiven debt will not be treated as cancellation of debt income, but will instead be capital gains. Taxpayers may exclude from capital gains up to $500,000 ($250,000 for taxpayers filing separate) of qualified mortgage debt forgiven. See Revenue and Taxation Code §17144.
Documentary Transfer Tax – Purchase Price No Longer A Secret
This law repeals the right of a principal buyer to request that the transfer tax be shown on a separate document, thus shielding it from public view. Previously, a seller or buyer of real property could demand from the county that the documentary transfer tax (DTT) be stated apart from the recorded document. This enabled principals to effectively keep the purchase pric
e secret, since the amount of the transfer tax can be reliably used to deduce the purchase price. Celebrities and high profile officers of public companies frequently hid their real estate purchase prices for security reasons. Now every document subject to DTT when it is submitted for recordation must show on its face the amount of the tax due. See Revenue and Taxation Code §§11932 and 11933.
Solar Energy Property Tax Exclusion Extended
Extends a solar tax exemption for new active solar energy systems until 2025. Existing law, set to expire in 2017, bars property tax increases based upon the construction or addition of a solar system. See Revenue and Tax Code §73.
Document Bundling Prohibited by HOAs – Sellers Must Pay Fees
This California Association of Realtors sponsored bill prohibits the practice of “document bundling” in the sale of units in a common interest development. (“Document bundling” is requiring the purchase of a package of documents together with the legally mandated disclosures.) Current law requires delivery of various common interest disclosure documents (“mandated CID disclosures”). These disclosures include the CC&Rs, Bylaws, Operating Rules, rental and age restrictions, budget reports, regular and special assessments, etc. Under the new law the fees for these mandated CID disclosures must be individually itemized for each document. Additionally, the fees for all mandated CID disclosures must be separately stated and separately billed from all other fees, fines, or assessments. Only mandated disclosures may appear on the statutory form. Once a written request for the mandated CID disclosures is made, the HOA must estimate the cost of the mandated CID disclosures prior to processing the request. Where there is no hard copy delivery of documents, the HOA may not charge an additional fee for electronic delivery in lieu of the hard copy. The statutory form has been modified to reflect these changes. This law would also require a seller to provide a prospective purchaser with all mandated CID documents that the seller possesses — free of charge. If a seller confirms in writing that the document is a current document then the HOA may not bill for it. The association may collect a reasonable fee based upon the association’s actual cost for the procurement, preparation, reproduction, and delivery of the documents – but only from the seller. It is the responsibility of the seller to pay the association, person, or entity that provides the mandated CID disclosures. See Civil Code §§4528 -4530.
No Shill Bidding At Real Estate Auctions
New law prohibits anyone from causing or allowing any person to bid at a sale for the sole purpose of increasing the bid on any real property being sold by the auctioneer. An auctioneer or another person may place a bid on the seller’s behalf during an auction of real property if proper notice is given that bid has reserve. The law also requires disclosure to all auction participants that the particular bid has been placed on seller’s behalf. See Civil Code §§ 2079.23 and 1812.610.
Judgment Debtor Retains Equitable Right to Redeem Real Property After Execution Sale Even Beyond 90 Day Statutory Period
In 1982 the legislature codified the Enforcement of Judgments Law which provides that a sale of real property pursuant to execution sale regarding enforcement of judgments is absolute and may not be set aside. As a procedural safeguard, that same law states that if the sale was improper because of irregularities in the proceedings, because the property sold was not subject to execution among other reasons, the judgment debtor may commence an action within 90 days after the date of sale to set aside the sale if the purchaser at the sale is the judgment creditor. Importantly, the Enforcement of Judgments Law was not originally intended to affect the equitable right of redemption. This is the right that a judgment debtor has to redeem property from a sale where there may be a grossly inadequate price, or where the purchaser is guilty of unfairness or has taken undue advantage, or in other circumstances which could merit an equitable right to redeem beyond the 90 day period. This law declares that these provisions of existing law do not affect, limit, or eliminate a judgment debtor’s equitable right of redemption. See Code of Civil Procedure §701.680.
Landlords and Tenants May Agree to Use Email Regarding Security Deposits
New landlord/tenant law permits landlords, professional property managers and tenants to agree to the use of emails for some notices and agreements regarding security deposits. Importantly, the new law includes the Notice of Right to Inspection Prior to Termination of Tenancy. The security deposit law itself, found in Civil Code § 1950.5, still requires that the itemization of the security deposit and notice to the tenant of its disposition must still be made be either personal delivery or regular mail. See Civil Code §1633.3.
Seller/Borrower Now Has Right to Request Suspension of Home Equity Line of Credit (HELOC) During Escrow
Today, if a borrower has a home equity line of credit (HELOC) secured by a lien on his or her house, the HELOC loan is supposed to be closed and not drawn on during the sale or refinancing of the house. If the lender fails to close the HELOC during escrow and money is drawn on, the underlying lien and loan may become the debt of the innocent buyer. This law facilitates the seller’s/borrower’s request to suspend the HELOC by creating a form for the seller/borrower to sign in escrow, the ultimate purpose being to avoid the mistake of drawing upon a HELOC during the escrow or immediately following the sale of the house. See Civil Code §2943.1.
HOAs and Landlords Must Now Permit Personal Agriculture
Present landlord/tenant law regulates the terms and conditions of residential tenancies, and prohibits a landlord or professional property manager from interfering with a tenant’s quiet enjoyment of the premises. This law requires a landlord to permit a tenant to participate in personal agriculture in portable containers approved by the landlord in the tenant’s private area if certain conditions are met. This law makes void any provision of a governing document of a common interest development that effectively prohibits or unreasonably restricts the use of a homeowner’s backyard for personal agriculture. The law is ambiguous with respect to personal marijuana cultivation for medicinal purposes. See Civil Code §§ 1940.10 and 4750.
HOAs Now Prohibited From Fining Members for Reducing Water Use
This law prohibits a homeowner’s association from imposing a fine or assessment against a member/owner/tenant that reduces or eliminates watering of vegetation or lawns during any period during which the Governor or local government has declared an emergency due to drought. In January of 2014 Governor Brown declared a State of Emergency to exist in California due to severe drought conditions. See Civil Code §4735.
Flood Insurance Premiums Increases Delayed
The Biggert-Waters Flood Insurance Reform Act of 2012 was became law with the purpose of requiring homeowners to pay premiums which reflect the true risks of living in high-flood areas. Importantly, the intent for the adjusted premiums was to cover a short fall in the National Flood Insurance Program and end subsidization of flood insurance for second homes and businesses. Upon implementation the astronomical premium increases was unanticipated. The harsh result of the extreme rise in premiums, “property owners across the nation are again facing foreclosure in the 20,000 communities where flood insurance is required for a mortgage,” and additionally “real estate agents are being forced to explain to former clients the lack of FEMA disclosures,” according to the National Association of Realtors. Thus, the present legislation necessity. The Home Flood Insurance Affordability Act of 2014 amends the Biggert-Waters law as follows:
- Repeals point-of-sale requirement that buyers immediately pay the full-risk premium rate at the time of purchase
- Restores “grandfathering” of rates in the flood zones where the properties were built to code
- Caps premium increases to 18% annually for new properties and 25% for the older properties until they are paying full cost for flood insurance
- Refunds any premiums paid by property owners in excess of 18-25% increases
Dispute Resolution by Common Interest Development Association must be in Writing and Signed by Both Parties
This law provides that a party to an association dispute resolution (or under the statutory alternative dispute resolution) must have the right to be assisted by an attorney (at his or her own cost). Furthermore, any agreement to a dispute resolution (whether under the association’s procedures or under the statutory alternative dispute resolution) that binds the parties and is judicially enforceable must be in writing and signed by both parties. See Civil Code §§5910 and 5915.
HOA May Levy Fines for Reduction of Water Use if HOA Uses Recycled Water for Landscape Irrigation
Existing law prohibits an association from imposing a fine or assessment on separate interest owners for reducing or eliminating watering of vegetation or lawns during any period for which the Governor has declared a state of emergency or the local government has declared a local emergency due to drought. This law exempts from these prohibitions against imposing a fine or assessment an association that uses recycled water for landscape irrigation. See Civil Code §§4735 and 4736 Common Interest Development’s Architectural or Landscaping Guidelines are Void and Unenforceable if They Prohibit the Use of Low Water-Using Plants as a Group or as a Replacement of Existing Turf Existing law provides that a provision of any of the common interest development governing documents is void and unenforceable if it prohibits the use of low water-using plants as a group. This law extends that same provision to include the architectural or landscaping guidelines or policies which shall also be void and unenforceable if it contains the above-described prohibitions or includes conditions that have the effect of prohibiting, low water-using plants as a replacement of existing turf. See Civil Code §4735.
“HAWK” – New Homebuyers Pilot Program – First-Time Homebuyers May Qualify for Savings on FHA-Insured Loans
“HAWK” stands for Homeowners Armed with Knowledge and serves as an umbrella term for Federal Housing Administration initiatives that link HUD’s Housing Counseling program with FHA-insured mortgage origination and servicing. Under the new proposed pilot program homebuyers will qualify for savings on their FHA-insured loans by completing housing counseling by a HUD-approved counseling agency. The counseling is aimed at improving buyers’ financial management skills and housing decisions. The program is open to first-time homebuyers as defined by FHA who qualify for FHA mortgage insurance. FHA defines a first-time homebuyer as an individual who has not been an owner in a primary residence for at least three years leading up to the purchase. The HAWK Pilot is proposed to be a four-year pilot.
Landlords Must Allow for Installation of Electric Vehicle Charging Stations by Renters, So Long as the Station Meets Minimum Standards
A tenant shall have the right to install at his or her expense an electric vehicle charging station for any lease executed, renewed, or extended on and after July 1, 2015, in accordance with specified requirements and compliance with the landlord’s or property manager’s approval process for modification to the property. As for residential properties, the law will not apply to properties with less than 5 parking spaces and one subject to rent control, among other exceptions. As for commercial properties, the law will not apply to properties with less than 50 spaces among other exceptions. The electric vehicle charging station and all modifications and improvements made to the property must comply with federal, state, and local law, and all applicable zoning requirements, land use requirements, and covenants, conditions, and restrictions. This law also requires the tenant to agree to specified provisions, including compliance with the lessor’s requirements for the installation, use, maintenance, and removal of the charging station and installation of the infrastructure for the charging station as part of the tenant’s request to install the station. The law requires a tenant to maintain in full force and affect a $1,000,000 lessee’s general liability insurance policy, as specified. The tenant would be required to pay for all costs prior to installation, and later, all costs of damage, maintenance, repair, removal and replacement of the charging station. See Civil Code §§1947.6 and 1952.7.
Truth in Lending Act and RESPA Disclosures are Integrated into Two New Forms: the “Loan Estimate” and the “Closing Disclosure.”
The TILA-RESPA rule consolidates four existing disclosures required under TILA and RESPA for closed-end credit transactions secured by real property into two new forms: the “Loan Estimate” and the “Closing Disclosure.” First, the Loan Estimate combines the Good Faith Estimate (GFE) and the initial Truth-in-Lending disclosure. The Loan Estimate must be delivered or placed in the mail no later than the third business day after receiving the consumer’s application. Second, the Closing Disclosure combines the HUD-1 and final Truth-in-Lending disclosure. It is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. The Closing Disclosure must be provided to consumers at least three business days before consummation of the loan. Certain changes to the Closing Disclosure prior to closing require may require a new waiting period. These include an APR that becomes inaccurate; the loan product changes; or a prepayment is added. The new Integrated Disclosures must be provided by a creditor or mortgage broker that receives an application from a consumer for a closed-end credit transaction secured by real property on or after August 1, 2015.
Postponement of Property Taxes for Senior and Disabled Citizens
This law revives a modified version of a similar law that expired in 2009 which allowed income-eligible seniors and disabled citizens to defer payment of their property taxes. Senior and disabled citizens may file a claim with the Controller to postpone the payment of ad valorem property taxes if household income does not exceed specified amounts. The Controller, upon approval of the claim, may either make a payment directly to the county tax collector, or to issue the claimant a certificate of eligibility that constitutes a written promise of the state to pay the amount specified on the certificate. All sums paid by the Controller for postponed property taxes are to be secured by a lien in favor of the State of California with limited priority equal to that of a judgment lien. The Controller may accept applications for postponement under the program as of July 1, 2016. This bill would limit the household income amount of a claimant to $35,500 and would exclude losses and nonexpenses from “income” for purposes of these provisions. This bill would also exclude mobilehomes and houseboats from the scope of these provisions. See Government Code and the Revenue and Taxation Code.
Forged and False Deeds May Be Voided By a Criminal Court Whenever a Defendant is Convicted of Filing, Registering, or Recording Such a Deed
Forged and false deeds can create chaos in the personal and financial affairs of the victims. Only a forged deed is completely void and ineffective to transfer any title. Thus criminal prosecution of a perpetrator of a forged deed will effectively void it. On the other hand, to remove a false deed from the record, a quiet title action is sometimes the only option — a lengthy and costly legal procedure. (A false deed is a deed where the perpetrator has claimed or transferred ownership falsely but has not in fact forged any one’s name). This law creates a procedure whereby a criminal court, upon motion of the prosecutor, may void false deeds in addition to forged deeds whenever a defendant is convicted of filing, registering, or recording such an instrument. See Civil Code §4735.
It is Important to Stay Up To Speed on the Real Estate Laws in California
This cursory review of the new 2015 real estate laws effecting owners, residents, real estate agents, and brokers. I hope that if certain laws peek your interest or have direct impacts on you a further inquiry will be performed by you. How these laws affect you will differ greatly for each individual circumstance. Please call me with questions 1-650-464-3797 or send me an email to [email protected]. I look forward to hearing from you in the New Year.
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