OCAR Blog

News and Information to Keep You a Step Ahead!

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By Tony Capitelli
GOVERNMENT AFFAIRS DIRECTOR

 

On April 26, President Donald Trump released a one-page tax reform proposal. The goals of this proposal are to  

  • Grow the economy and create millions of jobs,
  • Simplify our burdensome tax code,
  • Provide tax relief to American families—especially middle-income families—and
  • Lower the business tax rate from one of the highest in the world to one of the lowest. 

Those in the real estate industry who are concerned about possible elimination of the mortgage interest deduction will not find much reassurance in Trump’s brief proposal. It makes only causal mention of these incentives with the words, “Protect the home ownership and charitable gift tax deductions.” Your guess as to what that means is as good as mine.  

But more important than focusing on the specific provisions of any proposal is understanding why government policy should incentivize home ownership. As an engaged industry, our purpose is not to obstruct but, instead, to support at all levels of government programs and policies that encourage home ownership and protect real property rights. 

There are enough theories about tax reform to keep Congress busy from now on. More important than theories, however, is the proven way in which tax incentives have worked to encourage home ownership and, thereby, to create and preserve the American Dream. 

The United States was once a renter society, ruled by aristocratic landowners. Fortunately, unlike any other period in history or any other place on earth, those landowners unselfishly built the lasting mechanisms of liberty and willingly spread the wealth of landowning. 

It is difficult for even the staunchest limited-government advocate to deny the correlation between government’s involvement in housing and the increase in home ownership. In the past century, home ownership was responsible for the largest redistribution of wealth in American history. It is the easiest way to move up the economic ladder, and it is the best way for those who have not inherited wealth to build it. 

The mortgage interest deduction and other tax incentives are part of a bigger picture. On a national scale, this picture includes not only tax incentives but also the government-sponsored enterprises like Fannie Mae and Freddie Mac and their work in the mortgage market. Locally, home ownership can be discouraged by factors like restrictive zoning and government-imposed building costs and fees. 

Whatever the issue, however, our messaging needs to be focused on what’s important to our industry and our clients. For us REALTORS®, this discussion is not theoretical and impersonal but emotional and personal because it affects where we live and how we work. Any decision about the “business” of buying, selling, and taxing homes is personal for us. And it is personal for our clients. Emotions cannot be ignored when the decision being made affects the largest purchase of their lives.  

The facts and figures are important, and I would encourage you to educate yourself about the effect of the home ownership incentives in the tax code. But political discourse often devolves into surface-level talking points that neither express feelings adequately nor result in a more meaningful dialog about the facts at hand. 

Remember, this time, it’s personal. Don’t just tell lawmakers what you want them to do; tell them why it matters. We cannot let them forget that we are fighting to preserve the American Dream. That message will stick with them long after the numbers have changed and the reasons for those numbers have been forgotten.  

As a husband and father, I am thankful that my family has a roof over its head and a solid foundation for economic success. More important than either economic theories or talking points is the proven way in which tax incentives have worked in the real world to encourage home ownership and, thereby, to create and preserve the American Dream. 

 

Disclaimer: The content in this Government Affairs column is intended as a general advisory and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors; therefore, readers with specific legal questions should seek the advice of an attorney.

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Codified as California Code Sections 1101.1 through 1101.8

Current Replacement Requirement

When a property built on or before January 1, 1994 is undergoing additions, alterations, or improvements; SB 407 requires non-compliant plumbing fixtures to be replaced with water conserving fixtures.  Also, property built before 1994 that is altered or improved after 2014, must install compliant water fixtures as a condition of final permit approval.

Current Disclosure Requirement

As of January 1, 2017, the seller or transferor of single family units must disclose to a purchaser, in writing, requirements for replacing plumbing fixtures. In addition, the seller must disclose whether the real property includes noncompliant plumbing fixtures. The start date of this requirement for multifamily units is January 1, 2019. 

How to Disclose 

From the C.A.R. Legal Q & A on Water-Conserving Plumbing Fixtures

First, the TDS will allow the seller to disclose to the buyer the legal requirements of the law. That's on the second page of the TDS in the fine print.

Secondly, with the 2016 December forms release, the Seller Property Questionnaire (Form SPQ) will be revised to ask the seller whether they are aware of any non-compliant plumbing fixtures. 

Thirdly, on those transactions which are TDS exempt, the Exempt Seller Disclosure (Form ESD) will be amended to facilitate both disclosures. (Since for TDS exempt properties, neither the TDS nor the SPQ is used). 

Finally, with the December forms release there will be an optional disclosure form for "Water conserving Plumbing Fixtures and Carbon Monoxide Detector Notice" (Form WCMD). This form will provide an explanation of the technical requirements of the law. It is not actually a new form, but instead, is a revision of the existing "Carbon Monoxide Detector" form. Although, it is an optional form, agents should check with their broker to see if the brokerage requires its delivery. 

Plumbing Fixtures Considered Noncompliant: 

  • Toilets that use more than 1.6 gallons of water per flush (gpf). 
  • Urinals that uses more than 1 gpf. 
  • Showerheads that have a flow capacity of more than 2.5 gallons of water per minute (gpm). 
  • Interior faucets that emits more than 2.2 gpm.

The maximum gpf or gpm on a particular water fixture is typically determined by the year it was manufactured.  For instance, toilets manufactured between 1980 and 1992 usually use 3.5 gpf.  In 1994 the federal government mandated that manufactured toilets use an average of 1.6 gpf or less.  These standards and dates very by water fixture.  

Here is how to determine the gpf or gpm for each type of fixture. 

  • On toilets, the gpf is often listed next to the hinges or inside the tank. If not, look for the amount of liters, or year manufactured.  6 gpf is 6.1 liters. 
  • On showerheads, the gpm is usually listed in VERY small print near the rim, where the shower head attaches to the water supply. 
  • On faucets, the gpm is also usually listed near the rim next to the aerator.

There are manual methods to determine the flow or flush rates for each fixture.  If you cannot find the gpf or gpm, please contact me at tonyc@ocar.org, and I can send you more information. 

According to the California Energy Commission’s Appliance Efficiency Regulations here are the requirements for water fixtures manufactured after January 1, 2016.  Retailers, however, are permitted to sell products purchased prior to that date.  

  • Single flush toilets, 1.28 gpf.
  • Dual flush toilets, composite average 1.28 gpf 
  • Wall mounted urinals, 0.125 gpf.
  • Other urinals, 0.5 gpf. 
  • Showerheads, 2 gpm at 80psi. 
  • Bathroom faucets: 1.5 gpm
  • Kitchen faucets: 1.8 gpm 

If you have any questions, again please contact me at tonyc@ocar.org. Thank you.

Disclaimer – This update is intended as a general advisory, and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney.

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Property Assessed Clean Energy (PACE) programs are one way to finance energy-efficient home improvements. Unlike other available energy improvement programs, however, PACE financing attaches to the property in the form of a tax. Because this kind of financing involves a property tax, the companies administering the program need a city’s or a county’s tax-levying authority to market it to residents. For this reason, PACE is available only where the city council or the county board of supervisors has granted this authority. 

What problems are associated with PACE? 

  1. Predatory Lending: Qualification is based on home equity rather than on the borrower’s ability to repay, which violates the U.S. Department of the Treasury’s prohibition against predatory lending practices.
  2. Structured as a Property Tax Assessment: Because the amount borrowed is structured as a property tax assessment, it attaches to the property itself rather than to the owner, which negatively affects the owner’s ability either to sell the property or to refinance it and restricts a potential buyer’s ability to qualify for a mortgage on the property. 
  3. “Super-Priority” Lien: The amount borrowed is structured as a “super-priority” lien on the property, which means that, in the event of default, the PACE loan takes repayment priority over even the first mortgage. This arrangement violates the conditions spelled out in most mortgage agreements, negatively affects the owner’s ability either to sell the property or to refinance it, and restricts a buyer’s ability to qualify for a new mortgage on the property. 
  4. No Proof of Benefit or Value: Because the energy-efficient home improvements financed with PACE programs are often sold without either a home energy audit or a third-party certification of their operational effectiveness, the homeowner has no basis for performing a cost-benefit analysis or for assessing the true value of the improvements.
  5. No Utility Cost Offset: The homeowner is told that he or she will save enough on utility bills to cover the cost of the energy-efficient upgrades, but this utility cost offset seldom materializes. More often, the hapless homeowner ends up deep in the red.
  6. Price Inflation: PACE contractors inflate their prices for energy-efficient renovations, often charging far more than fair market value. 
  7. No Financial Oversight: Most of the contractors pitching PACE financing options have no financial expertise, and their offers and promises are not currently being scrutinized by any financial institution or government agency. 
  8. High Interest Rates: The interest charged for PACE financing can be as much as twice the amount charged for a home equity loan or on loans obtained via other financing alternatives. 
  9. Large Payoff Penalties: The penalties for early payoff are large and may include extended interest payments. 
  10. Harsh Late-Payment Penalties: Late payment or failure to pay is penalized in the same way as failure to pay property taxes and could result in foreclosure. 
  11. Automatic Default: A homeowner whose mortgage agreement specifically prohibits any other loan or lien from taking priority over the first mortgage—and most do—will be automatically in default. Thus, the lending institution holding the first mortgage can require accelerated payment or initiate foreclosure.
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In Horiike v. Coldwell Banker et al., the California Supreme Court left intact the practice of dual agency but imposed additional requirements on associate licensees in dual agency situations.

By Tony Capitelli
Government Affairs Director

The California Civil Code defines an “associate licensee” as “a person who is licensed as a real estate broker or salesperson … and who is either licensed under a broker or has entered into a written contract with a broker to act as the broker’s agent in connection with acts requiring a real estate license and to function under the broker’s supervision in the capacity of an associate licensee.”

While dual agency is treated differently in different states, this practice is legal in California provided that it is properly disclosed and consented to. Horiike v. Coldwell Banker et al. was a dual agency case involving luxury property in Malibu.

Chris Cortazzo, from Coldwell Banker’s office in Malibu, was the listing agent for the property. Both on the Multiple Listing Service and in a marketing flyer, Cortazzo described the property as having approximately 15,000 square feet of living areas. The buyer, Hiroshi Horiike, who purchased the property for $12.25 million, was represented by Chizuko Namba, an agent from the Coldwell Banker office in Beverly Hills.

The public record obtained by Cortazzo from the tax assessor’s office states that the property’s living area is 9,434 square feet, and the building permit obtained by Cortazzo states that the property is 9,224 square feet. Horiike signed all of California’s required dual agency disclosures; and through Namba, Cortazzo presented Horiike with a copy of the residence’s building permit and with an advisory form stating that only an appraiser can verify square footage and that a broker does not have that expertise. 

While the court in Horiike does not go so far as to impose complete liability on associate licensees in a dual agency situation, it does define a fiduciary duty of disclosure. Here is what you need to know:

  1. An associate licensee in a dual agency situation now has “a duty to learn and disclose all facts materially affecting the value or desirability of the property” in question.
  2. An associate licensee still has loyalty to his or her client. The disclosure requirement includes “facts materially affecting the value or desirability of a property that are not known to or reasonably discoverable by the buyer.”
  3. An associate licensee acts only on the broker’s behalf and has no relationship with clients independent of the broker.
  4. A broker is still not liable for the tortious acts of his or her associate licensee. The additional fiduciary duty in Horiike is limited to disclosure.

Although Horiike is a landmark dual agency case, it is limited in its scope. The court even states, “The fiduciary duty of disclosure that Horiike alleges Cortazzo breached is, in fact, strikingly similar to the nonfiduciary duty of disclosure that Cortazzo would have owed Horiike in any event.”

Disclaimer – The content in this Government Affairs section is intended as a general advisory, and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney.

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