RE: Appraisal Contingency Newsletter

Posted on May 21, 2015     Leave a Comment

RE: APPRAISAL CONTINGENCY

1. Removal of the Loan Contingency does not automatically remove the Appraisal Contingency.

Under the old RPA, removal of the Loan Contingency automatically removed the Appraisal Contingency. (Paragraph 31 of the old RPA). This means that once the Loan Contingency was removed, the buyer could not cancel if the Appraisal was low.

Under the new RPA, removal of the Loan Contingency does not automatically remove the Appraisal Contingency. This means that a buyer who removed the Loan Contingency can still cancel if the Appraisal is low. (Paragraph 3J3 of the new RPA).

Paragraph 3J3 of the new RPA states:

“If there is an appraisal contingency, removal of the loan contingency shall not be deemed removal of the appraisal contingency.”

This is why I recommend that Listing Agents demand that buyer remove both Appraisal and Loan Contingencies in writing at the same time.

This is why it makes sense to Counter on every deal to make the Loan Contingency also subject to removal in 17 days. Then it is clear that buyer is removing “all” contingencies at the same time.

2. Appraisal Contingency still applies for Cash Deals.

If an offer waives the Loan Contingency, then the Selling Agent will check the box at paragraph 3J4 of the RPA that states:

“NO LOAN CONTINGENCY: Obtaining any loan specified above is NOT a contingency of this Agreement. If buyer does not obtain the loan and as a result does not purchase the Property, Seller may be entitled to Buyer’s deposit or other legal remedies.”

Even if the Loan Contingency is waived, the Appraisal Contingency still applies. This means that an “all cash” buyer can still cancel if the appraisal is low.

To eliminate the Appraisal Contingency, the offer must have box 31 checked to state that the deal “is NOT” subject to an Appraisal Contingency. If box 31 is not checked on the offer, then the Listing Agent must Counter to remove the Appraisal Contingency.

3. Recommendations.

Listing Agents on a deal subject to both an Appraisal Contingency and Loan Contingency must confirm that ALL contingencies are removed in writing using the Contingency Removal form.

Listing Agents on a deal that waives the Loan Contingency (i.e. all cash) must confirm that paragraph 31 of the Offer has also been checked to state that Appraisal “is NOT” a contingency.

Understanding how Appraisal and Loan Contingencies work is critical to maximizing the benefits to your client on any deal.

RE: Seller Pitfall: Government Inspections and Repairs

Posted on May 21, 2015     Leave a Comment

SELLER PITFALL: GOVERNMENT INSPECTIONS AND REPAIRS

Nearly half of the cities in Los Angeles County have adopted ordinances that require a “pre-sale” property inspection conducted by the city. This means that seller is required to pay for a report from the city as to the status of permits, violations and building code compliance.

Many of the ordinances require an “on-site” inspection of the property by a Code Enforcement Officer prior to close of escrow. For example, cities of Azusa, Bell, El Monte, Inglewood and Carson each require an “on site” inspection prior to close of escrow.

Other cities, such as Beverly Hills, Burbank and the City of Los Angeles have adopted ordinances requiring sellers and buyers to sign water conservation certificates of compliance prior to close of escrow for any residential transaction.

These ordinances generally do not require seller to complete any repairs, but requires seller to obtain the report and deliver it to the buyer prior to closing escrow.

The costs to repair items in the report are always negotiable between buyer and seller unless paragraph 7B2 of the RPA has been checked to make seller liable for those costs.

Listing Agents Beware (RPA paragraph 7B2).

Paragraph 7B2 of the RPA is a trap for Listing Agents and sellers. If you represent a seller, you must CAREFULLY review paragraph 7B2. Paragraph 7B2 consists of three sub-parts that allocate pre-sale inspection and repair costs as follows:

Paragraph 7B2(i) states:

“❑Buyer ❑ Seller shall pay the cost of compliance with any other minimum mandatory government inspections and reports if required as a condition of closing escrow under any law.”

MEANING: Seller should never agree to this paragraph. If the box is checked, then seller is responsible for the cost of any and all government inspections and

reports. This includes all city pre-sale inspections as well as any other possible inspection imposed by any other governmental agency (i.e county, fire department, et cetera). This provision is simply too broad and requires seller to pay the cost to comply with “unknown” reports.

Paragraph 7B2(ii) states:

“OBuyer111 Seller shall pay the cost of compliance with any other minimum mandatory government retrofit standards required as a condition of closing escrow under any law, whether work is required to be completed before or after COE.”

MEANING: Seller should never agree to this paragraph. This paragraph makes the seller responsible to pay all costs required to make a property “code” compliant, correct all violations and correct “unpermitted” improvements. Seller should never sign an offer that required him/her to pay these costs.

I have had two cases in Azusa where the pre-sale inspection report required in excess of $100,000 in repairs. Both of these disputes resulted in both agents becoming parties to the litigation.

Paragraph 7B2(iii) states:

“Buyer shall be provided, within the time specified in paragraph 14A, a copy of any required government conducted or point of sale inspection report prepared pursuant to this Agreement or in anticipation of this sale of the Property.”

MEANING: This paragraph only requires seller to deliver a copy of all city pre-sale inspection reports and all other required reports, if any.

Listing Agents and Sellers review paragraph 7B2 prior to signing any RPA. A seller

should never agree to paragraphs 7B2(i) or 7B2(ii).

It is important to note that seller is still required to complete any city pre-sale inspections,

but will not be liable for the cost of repairs, only the cost of the inspection.

If a buyer insists on seller making repairs under 7B2(ii), the at the very least prepare a

Counter Offer to limit seller’s contribution to $1,000, $2,000 or $3,000.

DO NOT LET YOUR SELLER AGREE TO UNLIMITED REPAIR COSTS.

RE: Fences & Walls Newsletter

Posted on March 26, 2015     Leave a Comment

FENCES  AND WALLS

Homeowners often ask whether they are obligated to split the cost to repair and/or replace property line fences with their neighbor.   The law distinguishes between fences that are constructed on the property line from those constructed entirely on one of the properties.

If the fence is constructed entirely on your property, then your neighbor has no legal obligation  to share in the cost of repair and/or replacement. If the fence is constructed entirely on your neighbor’s property, then you have no legal obligation to share in the cost of repair and/or replacement.

However, if the fence is on the property line between two homeowners, then both homeowners are legally obligated  to share in the cost of repair and/or replacement.  A fence that is on the property line is called a “division fence.”

Division  Fences.

California  Civil Code section  841 requires  each property  owner to pay the “reasonable” costs to maintain  and/or replace “division fences.”

For example,  assume that there is a 75′ wood fence between  two tract homes.   The fence runs the entire length of the back yard separating  the two properties.  Each owner is required  to pay 50% of “reasonable” repair and/or replacement costs if the fence is damaged  or destroyed.

California Civil Code section  841 states:

(a) Adjoining  landowners shall share equally in the responsibility for maintaining the boundaries and monuments between them.”

This means that homeowners are generally obligated  to split the cost to maintain  and/or replace fences between  them.

Repair and/or Replacement must be “Necessary.”

 The repair must be deemed “necessary” for Civil Code section  841 to apply.  For example, assume that there is a perfectly  good wood fence separating two tract homes.   One owner wants to replace the wood fence with a block wall.  The other owner is not required  to share in the cost because the wood fence is still good and it is not “necessary” to replace it.

Repair and/or Replacement costs must be “Reasonable.”

The repair costs must be deemed “reasonable” for Civil Code section 841 to apply.  For example, assume that there is a deteriorated wood fence separating two tract homes.  Both homeowners agree that it is “necessary” to replace the fence.  One owner wants to spend $15,000.00 to replace the fence with a block wall, while the other owner has received an estimate to install another wood fence for $5,000.00.

Although the repairs in this example are “necessary,” the cost to replace a wood fence with a block wall is likely “unreasonable” since the upgrade will cost 3 times the cost of the wood fence and results from a homeowners personal preference.

California Civil Code section 841(b)(3)(D)(ii) states that a homeowner is not legally obligated to pay for any repair or replacement if:

“(ii)  The extent to which the costs of the project appear to be the result of the landowner’s personal aesthetic, architectural, or other preference.”

The homeowners are legally obligated to split the cost to replace the wood fence with another wood fence.  Neither is legally obligated to pay for any enhancement such as block walls that are based upon personal aesthetic, architectural, or other preference of the other homeowner.

Apportionment of Repair and/or Replacement costs.

If the repair and/or replacement of a fence results in a disproportionate benefit to only one homeowner, then the other homeowner is only legally obligated to pay for his portion of the repair.

For example, if one neighbor’s  lot is twice as deep, then the owner of the smaller lot is only legally obligated to pay for half of the cost to repair and/or replace that portion of the fence that runs along his property.

California Civil Code section 841(b)(3)(A) states that a homeowner is not obligated to pay the cost to repair and/or replace a common fence if:

“(A)… the financial burden to one landowner is substantially disproportionate to the benefit conferred upon the landowner by the fence in question.”

The homeowner is only legally obligated to pay for repair or replacement for that portion of a common fence that runs along his property line.

Summary.

In summary, Homeowners are generally obligated to split the cost to maintain and/or replace property line fences. Homeowners are generally not obligated to split the cost to upgrade a fence based upon personal aesthetic, architectural, or other personal preferences. Homeowners are only legally obligated to pay for repair or replacement for that portion of a common fence that runs along his property line.

RE: Personal Assistants: What Can They Do?

Posted on January 7, 2015     Leave a Comment

           PERSONAL ASSISTANTS: WHAT CAN THEY DO?

Many agents hire personal assistants to help them with secretarial and/or organizational tasks.  If the personal assistant is not licensed by the BRE, then that assistant cannot do anything that requires a California salesperson license. Business & Professions Code §10132.

A personal assistant cannot be paid a commission.  A personal assistant should not have company business cards and should be paid either hourly or salary.

A personal assistant may only perform duties of a secretarial nature.  A personal assistant may not call any owner or buyer for the purpose of soliciting a listing, sale, lease or exchange of real property.

A personal assistant may call owners to schedule showings, closings or inspections.   The scope of these discussions should be limited to scheduling. The personal assistant may not prospect, may not call “for sale by owners” and may not call on expired listings.

The following is a quick summary of do’s and don’ts for the unlicensed personal assistant:

DON’TS:

1.  Don’t hold open houses;

2.  Don’t negotiate terms of any transaction;

3.  Don’t draft, explain or interpret CAR FORMS for buyers or sellers;

4.   Don’t solicit buyers or sellers for the agent/broker;

5.  Don’t prospect for listings, sale, lease or exchange of real property; and

6.  Don’t ask or answer questions from any buyer or seller concerning any property such as asking price, number of bedrooms, number bathrooms or other qualities of the property.

DO’S:

1.   Schedule appointments for the agent/broker;

2.  Call buyers or sellers to schedule showings, inspections and closings;

3.  Compile listing packages;

4.  Deliver documents such as Offers, Counter Offers and Disclosures;

5.  Create flyers and brochures, and place advertising for the agent/broker;

6.  Take pictures for the agent/broker;

7.  Map properties for showing to buyers;

8.  Calendar important dates: contingencies, inspections, loan approval, closing;

9.  Order and/or maintain For Sale, Open House, Pending and Sold signs; and

10.  Coordinate closing

If the unlicensed personal assistant engages in any conduct for which a license is required, then both the agent and broker could be subject to discipline by the Bureau of Real Estate. Business & Professions Code §10137.

The unlicensed personal assistant should be considered a secretary or office manager. Their conduct must continually be supervised by the agent.

RE: RPA Deadlines

Posted on October 23, 2014     Leave a Comment

CALCULATING RPA DEADLINES

How are deadlines in the RPA calculated?     There are three major deadlines in the RPA: (i) a 7 day deadline for Seller to deliver all Reports to the Buyer; (ii) a 17 day deadline for Buyer to remove all Contingencies and (iii) a 2 day deadline for buyer/seller to respond to a NBP or NSP.

1.    PARTIES have 2 days to RESPOND to a NBP or NSP.

How are deadlines for a NBP or NSP calculated?  When can a buyer/seller cancel based upon failure of the other party to respond?

Under the new RPA to be released in November, 2014, the NBP and NSP each require a response within 2 days.

Response time rules are summarized as follows:

I.    The day that the NBP or NSP is served does not count. For example, if you serve a NBP or NSP on Tuesday at 9:00a.m., then you cannot cancel until after

11:59p.m. on Thursday night.  In other words, only complete days counts toward calculating the deadline.

II.    The time of day that you serve the NBP or NSP is irrelevant. For example, if you serve the NBP on Tuesday at 9:00a.m., then Wednesday and Thursday are the two days that count.  The buyer has until11:59p.m. on Thursday to respond regardless of the time that you served the notice.

III.       Deadlines that fall on Saturday, Sunday or a legal holiday are extended until the next business day.  For example, if you serve a NBP or NSP on Thursday, then the deadline would be Saturday at 11:59p.m.  However, since the deadline falls on a Saturday, the responding party has until11:59p.m. on Monday to respond.

2.    SELLER has 7 days after ACCEPTANCE to deliver ALL REPORTS to the BUYER.

Seller has 7 days after Acceptance to deliver all “Reports” to the buyer. “Reports” mean the Transfer Disclosure Statement, Natural Hazard Disclosure, Supplemental Tax Disclosure, Lead-Based Paint Disclosure and every other disclosure required by the RPA.

The Acceptance Date is the date that the offer or final counter offer .is signed by all parties.  For example, if seller signed a counter offer on Tuesday, but buyer does not sign until Wednesday, then Wednesday is the Acceptance Date.

The Acceptance Date does not count towards calculating the deadline.  If, for example, the Acceptance Date is on Wednesday, then seller has until 11:59 p.m. on the following Wednesday to deliver all Reports to the buyer.

If the 7th day falls on a Saturday, Sunday or legal holiday, then seller has until11:59 p.m.

on the next business day to produce Reports. For example, if the deadline falls on Saturday, then seller has until11:59p.m. on Monday to produce the Reports.

3.    BUYER has 17 days after ACCEPTANCE to REMOVE all CONTINGENCIES.

Buyer has 17 days after the Acceptance Date to remove all contingencies or cancel. The Acceptance Date does not count towards calculating the deadline.  If, for example, the Acceptance Date is on August 1st, then seller has until 11:59 p.m. on August 18th to remove all contingencies or cancel.

If the 17th day falls on a Saturday, Sunday or legal holiday, then seller has until11:59 p.m. on the next business day to respond. For example, if the deadline falls on Saturday, then seller

has until11:59 p.m. on Monday to remove contingencies or cancel.

However, remember that the RPA does not penalize the buyer for failing to remove contingencies unless seller has served a NBP.  Paragraph 14B4 of the RPA states that all contingencies continue to run in favor of the buyer until removed in writing.

Once seller serves a NBP, then buyer must either remove all contingencies within 2 days or seller can cancel.  Your buyer should not be anxious to remove contingencies until after the NBP is served.

NEW 2014 RPA

Posted on September 10, 2014     Leave a Comment

RE:  THE NEW RPA

The RPA has been revised again and will be released in November 2014.  The form has been increased from 8 pages to 10 pages and many of the changes are not for the best.

The following is a summary of some of the more important changes that are likely to cause problems:

1.  First, the loan contingency is now 21 days instead of 17 days. All other contingencies including appraisal remain at 17 days. This will necessitate that listing agents send NBP at 17 days and then again at 21 days to assure removal of all contingencies. See Paragraph 3J3 of the new RPA.

2.  Second, you can no longer allocate the cost for termite inspections to Buyer or Seller using the RPA. You will need to allocate costs by separate agreement. This will be a trap for the unwary agent. See 7A of the new RPA.

3.  Third, Sellers are now required to complete all city pre-sale inspections and provide reports to the Buyer within seven (7) days. To show how out of touch CAR is, city inspections can take 30 days or more to schedule and complete. I suggest advising your Sellers to contact the city immediately upon signing the Listing Agreement to confirm whether their city requires an inspection. See Paragraph 7B2(iii) of the new RPA

4.  Fourth, Sellers are now required to provide a list of all leased items in the house within seven (7) days of signing the RPA. This applies to any system in the house that is leased and will not be paid-off through escrow such as solar systems. See Paragraph 8B4 of the new RPA.

5.  Fifth, the Seller Property Questionnaire (SPQ) is now a required form that every Seller must complete unless countered out of the RPA. See Paragraph 10A4 of the new RPA

6.  Sixth, the RPA has been revised to require two (2) days notice for both the NBP and the NSP. Previous versions of the RPA did not specify the amount of time needed for a NSP. If the deadline falls on a Saturday, Sunday or legal holiday, then the responding party has until the next business day to respond. See Paragraph 14D of the new RPA.This is not a complete list.

There will be more to come as we get close to the official release date of the new RPA.

09/10/14

Can a California Agent Recover Commission on Out-of-State Transactions?

Posted on August 29, 2014     Leave a Comment

RE:  Tip of the Week

Can a California Agent Recover Commission on Out-of-State Transactions?

An agent can earn a commission on out-of-state transactions, but must follow some simple rules set forth below.

1.  Representing a Buyer in purchasing an out-of-state property.

In this example, the California agent represents a Buyer in purchasing an out-of-state property.  This means a California agent is representing a California Buyer purchasing an out-of-state property.

First, the agent must use a written California Buyer-Broker Agreement that specifies the amount of commission due.  That Buyer-Broker Agreement must contain a provision requiring the agreement to be enforced under California law.  The CAR Buyer-Broker Agreement-Exclusive satisfies these requirements.

Second, the agent must conduct all “licensed activity” from California.  This means that all negotiations must occur in California.  The agent may not personally show the property or negotiate terms of sale while in another state.  In other words, the agent must stay in California.

Third, the agent must enter into a Cooperating Broker Agreement with the listing agent that specifies the amount of commission due and contains a provision requiring the agreement to be enforced under California law.

Follow these three simple steps and the California agent can receive a commission as a selling agent for an out-of-state property.

2.  Representing a Seller in listing an out-of-state property.

In this example, the California agent represents a Seller in listing an out-of-state property.  This means that a California agent is taking a listing from a California Seller to list an out-of-state property.

First, the agent must use a written California Listing Agreement that specifies the amount of commission due.  That Listing Agreement must contain a provision requiring the agreement to be enforced under California law.  The CAR Listing Agreement satisfies these requirements.

Second, the agent must conduct all “licensed activity” from California.  This means that all marketing, negotiations and sales efforts must occur in California.  The agent may not personally show the property or negotiate terms of sale while in another state.  In other words, the agent must stay in California.

Third, use a major title company to provide escrow for the transaction.  Most major title companies have national divisions which allow you to maintain control of out-of-state escrows from California.

Follow these three simple steps and the California agent can receive a commission as a listing agent for an out-of-state property.

3.  Paying commission to an out-of-state broker.

A California broker can share commission with an out-of-state broker as long as that broker does not engage in any “licensed activity” in California.

Business & Professions §10137 specifically authorizes a California broker to pay commission to an out-of-state broker.

However, this means that the out-of-state broker cannot market, negotiate or conduct any sales activities in California.   The out-of-state broker cannot perform any services inside the State of California.  The out-of-state broker must stay out of California or forfeit his/her commission.

4.  Summary

The key for the California agent is to:  (1) use CAR Buyer-Broker Agreement-Exclusive (if representing a Buyer) or use CAR Listing Agreements (if representing a Seller); (2) do not engage in any “licensed activity” while out-of-state; and (3) use a major title company with offices in California as escrow.

RE: LANDLORD/TENANT: ABANDONMENT, SURRENDER & PERSONAL PROPERTY

Posted on October 22, 2013     Leave a Comment

RE:  Landlord/Tenant:  Abandonment, Surrender and Personal Property

        A good portion of my clients own residential rental properties and need to understand the difference between Abandonment, Surrender and Unlawful Detainer.  It is also important to understand how to dispose of property  left behind by the tenant.

Termination of Tenancy.

        A residential tenancy is terminated by either:  (1) Abandonment; (2) Surrender; or (3) Unlawful Detainer.

        Agents should never be involved with the:  (1) Abandonment; (2) Surrender; or (3) Unlawful Detainer process  on behalf of the owner. The agent should not post notices, leave business cards or do anything to assist the owner with the abandonment, surrender or unlawful detainer process.

        I always encourage owners to use the Unlawful Detainer process instead of relying on Abandonment or Surrender.  This way the eviction is to be handled by court order and the lock-out by the Sheriff.  This is the safest way to evict a tenant with the least amount of exposure.

        If the owner does not satisfy the requirements for Abandonment, Surrender or Unlawful Detainer, then the owner is potentially liable for damages to the tenant for Wrongful Eviction.  If the agent assisted the owner, then the agent is liable for Wrongful Eviction.

Abandonment.

        Abandonment is when a tenant has left a property before expiration of the lease with no intent to return.  Abandonment is a specific legal process that requires a landlord to follow three steps before changing the locks and regaining possession:

1. 1.   First landlord must show a “reasonable belief” that the property has been abandoned.  A “reasonable belief” is established by the following factors observed by the landlord:
   1. a.   Rent remains unpaid for at least 14 days;
   2. b.   Utilities are turned off;
   3. c.   Mail is not picked-up;
   4. d.   Furniture has been moved out; and
   5. e.   Neighbors have not seen the tenant for days or months.
2. 2.   Second, landlord must serve to the tenant’s last known address a written Notice of Abandonment using the exact language required by  Civil Code Section 1951.3(c), which is available on-line.
3. 3.   Third, the property cannot be declared abandoned unless the tenant fails to respond to the Notice of Abandonment within 18 days after service by mail (15 days if served in person).

If the landlord fails to follow the law, then the tenant can sue the landlord for Wrongful Eviction and recover three times actual damages.

If the agent participated in the Abandonment process, then the agents gets sued as well and may owe damages to the tenant.

Although Abandonment terminates the lease, the landlord can still recover past, present and future damages in any additional remedies provided for in the lease agreement.

Surrender.

Surrender is a “mutual written agreement” between landlord and tenant to terminate the lease.

A surrender is accomplished when the tenant gives a 30-day written notice terminating a month-to-month tenancy.  A surrender may also be accomplished when a tenant gives written notice of an early termination of the lease (i.e. tenant wants to vacate the premises early).

The landlord should carefully review any surrender agreement to make sure that they are not releasing the tenant from amounts that remain unpaid under the lease.  The surrender should be restricted to just the date the tenant is vacating and turning possession over to the landlord.

Although a surrender agreement terminates the lease, the landlord can still recover past, present and future damages in addition to any additional remedies provided for in the lease agreement.

Tenants Personal Property.

What happens if the tenant leaves personal property at the end of the lease?  The answer depends upon whether the reasonable value of the property left behind is less than or more than $300.00.

If the value of the property is less than $300.00, then the landlord may keep, discard or sell the property without notice to the tenant.  The landlord should take pictures and carefully document each item left behind in the event of a challenge by the tenant.

If the value of the property exceeds $300.00, then the landlord must carefully follow the requirements of Civil Code Section 1983(b), which requires that the property be sold at public sale (i.e. yard sale by the storage facility) after the following conditions have been met:

1. 1.   Landlord can remove the property and must place it in a safe place for storage (i.e. commercial storage locker);
2. 2.   Landlord must give written Notice of Abandonment of Property to the tenant that:  (1) identifies the personal property being stored (i.e. couch, chair, pictures, etc.); (2) identifies the location where the personal property can be picked-up; (3) states the per diem storage cost; and (4) states that the property will be sold if not picked-up within 18 days;
3. 3.   Landlord must publish Notice of Sale in the local newspaper prior to selling it; and
4. 4.   Landlord may deduct storage, publication and other costs incurred with the sale.  The landlord must pay the balance to the County as unclaimed property.

Landlords must carefully follow these rules or they will be subject to possible claims for substantial damages by the tenant based upon conversion of personal property.

I have litigated two cases for Unlawful Eviction where the tenant dragged my agent through expensive litigation because these rules were not followed.  Each case cost my agent tens of thousands of dollars in legal fees.