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CODE OF ETHICS

As with any new year, there are always changes. This year is no different. Some important changes to the National Association of REALTORS®Code of Ethics and Standards of Practice should be noted. This guide outlines REALTORS®’ revised duties to their clients, customers, the public, and other REALTORS®.

Changes were made throughout the Code to eliminate the term “competitor” and instead replace it with the broader term “real estate professionals.” Specifically, this change is reflected in Article 15, Standard of Practice 15-2, and Standard of Practice 15-3. Article 15 now states, “REALTORS® shall not know knowingly or recklessly make false or misleading statements about other real estate professionals, their businesses or their business practices.” Standard of Practice 15-2 states:

“The obligation to refrain from making false or misleading statements about other real estate professionals, their businesses, and their business practices includes the duty to not knowingly or recklessly publish, repeat, retransmit, or republish false or misleading statements made by others. This duty applies whether false or misleading statements are repeated in person, in writing, by technological means (e.g., the Internet), or by any other means.”

Lastly, Standard of Practice 15-3 is amended to state, “The obligation to refrain from making false or misleading statements about other real estate professionals, their businesses, and their business practices includes the duty to publish a clarification about or to remove statements made by others on electronic media the REALTOR® controls once the REALTOR® knows the statement is false or misleading.”

Further changes were made to Article 17 regarding mediation of disputes. In contractual (as well as certain non-contractual) disputes, the Association governing those disputes can require the disputing parties to mediate prior to submitting the matter to arbitration. The Article goes on to afford the clients of REALTORS® the opportunity to mediate in accordance with the Association’s legal policies. In the past, NAR required the boards and associations to offer mediation to the members, but participation remained voluntary. With the amendment to Article 17, local boards and associations would be able to require mediation prior to arbitration, if the Board of Directors and/or the membership authorizes it.

However, a provision has been added to Standard of Practice 17-2 to state that “Article 17-2 does not require REALTORS® to mediate…when all parties to the dispute advise the Board in writing that they choose not to mediate through the Board’s facilities.” The new language does not relieve REALTORS® of their duty to arbitrate but rather correlates with the already existing language in 17-2. Standard of Practice 17-2 continues to state that Article 17 does not require parties to arbitrate when all parties advise the Board (in writing) that they choose not to arbitrate before the Board.

Lastly, a new Standard of Practice has been added to Article 1 of the Code of Ethics. Standard of Practice 1-16 outlines, in no unspecific terms, that REALTORS® are not to access or use, or permit others to access or use, a listed or managed property on any terms or conditions that are not authorized by the owner or seller. This authorization should be in writing.

Any questions regarding the changes to the Code of Ethics or with compliance in general should be directed to the appropriate Board or to qualified legal counsel.

MODEL MLS RULES AND REGULATIONS

In November 2011, the National Association of REALTORS® Board of Directors met at the REALTOR® Conference and Expo in Anaheim to discuss changes to the Model MLS Rules and Regulations. As of the first of this year, those changes came into effect, many of which are mandatory on the local MLS in order to maintain compliance with existing, already-mandatory policies and to ensure coverage under the National Association master professional liability insurance policy.

One of the more controversial changes, it seems, is the deletion of Section 18.2.10, as well as the deletion of language in Policy Statement 7.58. Both regard Internet Data Exchange (IDX) listings on franchisor’s websites, which gave further rise to questions about social media and IDX. The Board of Directors opted to rescind the language about IDX and franchisors and, according to Robert Freedman at REALTOR.org, “a work group has been tasked to broaden the policy to address listing displays over mobile device and via social media.

Other changes to the MLS Rules and Regulations include an increase in the maximum security deposit that Associations and MLSs can require for lockboxes. Previously, Policy Statement 7.31 stated “the initial deposit shall not be less than $25 nor more than $200.” The maximum figure has now gone up to $300 in order to continue to “establish an awareness of personal liability for such key.” This change in the lockbox deposit amount is also one of the mandatory changes implemented by the National Association of REALTORS®.

Section 2.5, Report Sales to the Service, was amended to include sale prices as part of the status changes that are reported to the multiple listing service by either the listing or cooperating broker. Additional “notes” were added to the section to address the differences in disclosure states and indicates where sale prices of completed transactions are not accessible. In states where complete transactions are not accessible, failure to report sales or sale prices is subject to disciplinary action if the MLS (1) categorizes the sale price information as confidential, and (2) limits the use of sale price information to specific subscribers, participants, customers, clients and governmental bodies (as detailed in Section 2.5). Further, with regards to Virtual Office Websites (VOWs), sale prices are considered confidential in states where actual sale prices of completed transactions are not a part of public records.

Policy Statement 7.75, Reporting Sales to the MLS, follows the same vein as Section 2.5 by including sale prices in the information that must be reported. The notes regarding “disclosure” and “nondisclosure” states also contain the same language as that in Section 2.5.

Policy Statement 7.97 was also adopted by the directors. This section give MLSs discretion to requires participants to disclose if a listed property is bank-owned, real estate owned, or a foreclosure.

It is important to be aware of these changes and be on the lookout for any changes in any local MLS Rules and Regulations. Each Association and/or MLS will announce the specific changes to its MLS. All Associations within CARETS affiliated MLS’ utilize a uniform set of rules. Keep an eye on future Courtside Newsletters or check out our Facebook for updates.

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SB 459: Misclassification of Independent Contractors

Senate Bill 459 amends the California Labor Code, Section 226.8, to prohibit the willful misclassification of an individual as an independent contractor. “Willful misclassification” is defined as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” The bill prohibits charging individuals who have been mischaracterized as independent contractors a fee or making deductions from compensation that would have violated the law if the individuals had not been misclassified.

To reflect the seriousness of willfully misclassifying an employee, if the Labor and Workforce Development Agency or a court determines that a violation has taken place, the penalty is $5,000 per incident. If the violator has a pattern or practice of willfully misclassifying employees, the penalty will be no less than $10,000 and could go up to $25,000. The violator will also be ordered to post a notice signed by an officer for one year that states: (1) what the violation was, (2) that their business practices have been changed to avoid committing further violations, (3) that employees who believe they are misclassified may contact the Labor and Workforce Development Agency, and (4) that the notice is posted pursuant to State order. A licensed contractor who is found to have violated Section 226.8 will be reported to the Contractors’ State License Board for disciplinary action.

Additionally, any person who knowingly advises an employer to treat an individual as an independent contractor to avoid employee status may be jointly and severally liable with the employer if the individual is found not to be an independent contractor.

AB 469: Wage Theft Protection Act of 2011

Effective January 1, 2012, Assembly Bill 469 added Section 2810.5 to the California Labor Code, Wage Theft Prevention Act of 2011. Employers are now required to provide non-exempt employees with written notice at the time of hire containing the following specific wage-related and employer information:

1. The rate or rates of pay, the basis for the rate, and whether it is paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime.
2. Any allowances claimed as part of the minimum wage, including meal or lodging allowances.
3. The regular payday.
4. The name of the employer, including any “doing business as” names used by the employer.
5. The physical address of the employer’s main office or principal place of business and a mailing address, if different.
6. The telephone number of the employer.
7. The name, address, and telephone number of the employer’s workers’ compensation insurance carrier.
8. Any other information the Labor Commissioner deems material and necessary.

If any changes are made to this information non-exempt employees must be notified in writing within seven calendar days of change.

The Act also increasess civil penalties for wage violations, such as employers paying less than minimum wage, and increases the statute of limitations. The full text of the Act can be found on the Department of Industrial Relations’ website. The Labor Commissioner is developing a guide/FAQ for employer compliance that should be available this month. It will be found at : http://www.dir.ca.gov/dlse/Governor_signs_Wage_Theft_Protection_Act_of_2011.html

SB 272: Leaves of Absence for Organ and Bone Marrow Donation

Senate Bill 272 amends Labor Code Section 1510 current law regarding leaves of absence for employees who donate an organ or bone marrow to another person. Current law provides a leave of absence for an organ donor of 30 days within a one-year period and a leave of absence for a bone marrow donor of five days within a one-year period. SB 272 clarifies that those are “calendar days” not “business days” and that the one-year time period will begin on the first day of the employee’s leave. The leave of absence will not be considered a break in the employee’s continuous service for the purposes of the right to time off. The employee will still be entitled to coverage under a group health plan. The employer retains its right to negotiate an employee benefit plan that will be better than an existing plan and no rights provided under Section 1510 will be diminished by an employee benefit plan entered into on or after January 1, 2011. The employer may require the employee take up to five days of earned but unused sick leave, vacation, or paid time off for bone marrow donation, or up to two-weeks of earned but unused sick leave, vacation, or paid time off for organ donation. The employee’s leave for donation cannot be taken concurrently with any other leave taken pursuant to the federal Family and Medical Leave Act of 1993 or the Moore-Brown-Roberti Family Rights Act. The leave can, however, be taken in one or more periods, but still cannot exceed the time allotted.

SB 299: Pregnancy Disability Leave

Under current law, it is unlawful for employers to discriminate based on sex or disability or to refuse to allow a female employee disabled by pregnancy, childbirth, or a related medical condition to take a reasonable leave of absence for said conditions. SB 299 amends California Government Code Section 12945 to include that it is also unlawful for an employer to refuse to maintain and pay for coverage under a group health plan for eligible female employees who take leave. However, the premium paid by the employer can be recovered from the employee if: (1) the employee fails to return to work after the term of the leave that the employee is entitled to expires; or (2) the employee fails to return from leave for a reason other than they are on leave under the Moore-Brown-Roberti Family Rights Act; or (3) if the employee is entitled to additional leave due to continuation, recurrence, or onset of a health condition. The amendment makes it unlawful to refuse to accommodate an employee for a condition related to pregnancy, childbirth, or a related condition if she requests the accommodation based on the advice of her healthcare provider.

AB 551: Penalties for Contractor’s Violation of Labor Code

Assembly Bill 551 amends several sections of the Labor Code to increase penalties for violations of various Labor Code provisions regulating contractors and subcontractors on public works contracts.

Section 1775 is amended regarding failure to pay minimum wages: The penalties are increased for contractors and subcontractors who pay less than the minimum per diem wage to their employees. Under existing law, the penalty is $10 to $50 per calendar day. Effective January 1, 2012, the penalty will be $40 to $200 per calendar day. The penalty is determined by the Labor Commissioner based on: (1) whether the employer intended not to pay per diem wage or whether it was a good faith mistake that was promptly rectified, and (2) whether the employer has a prior record of failing to meet prevailing wage obligations. If the employee was employed by a subcontractor, the prime contractor will not be liable for the penalties if the prime contractor: (1) had no knowledge of the subcontractor’s failure to pay prevailing wages; and (2) attempted to take corrective action once becoming aware of the subcontractor’s discrepancy.

Section 1776 is amended regarding contractor and subcontractor payroll records and the inspection of said records. The penalty for not complying with a written request for payroll records within 10 days is $100 each calendar day the contractor or subcontractor is delinquent.

Section 1777.1 is amended to provide that a contractor or subcontractor who is in violation will be unable to bid or perform work on a public works project for a minimum of one year or a maximum of three years. If payroll records are not produced within 30 days of a written request, in addition to the per diem fine, the contractor or subcontractor may be subject to debarment.

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This month, The Giardinelli Law Group, APC summarizes the recently released new and updated C.A.R. Forms.  To read the most recent Courtside Newsletter, click here now.  You can also find copies of previous Courtside Newsletters under the “NEWS/BLOGS” tab of THE GIARDINELLI GROUP, APC website: www.glawgroupapc.com

WHAT THESE NEW LAWS MEAN FOR PRACTITIONERS

BY: CASEY MCINTOSH, PARALEGAL

The current session of the California State Legislature recently passed a number of Bills that will affect REALTORS®, real estate agents, and their clients in numerous ways. As these new laws will come into effect in 2012, it is important to be informed now in order to make implementation as easy as possible. The following are simply a few of the new laws and how they will pertain to real estate practitioners when they become effective.

Senate Bill 510: Branch Offices

This piece of legislature will become effective July 1, 2012 and will amend Section 10164 of the Business and Professions Code as it applies to the management of branch offices. Pursuant to existing law, a real estate broker is required to procure a separate license for each branch office maintained by the broker. SB 510 will authorize an employing broker to appoint a branch manager, pursuant to a written contract, and delegate responsibility to oversee and supervise operations and activities of that branch, as specified in the employment contract. The employing broker will also be required to send a written notice to the Department of Real Estate identifying the appointed manager and, should the broker-manager relationship be changed or terminated, the broker will be required to notify the Commissioner of those changes as well. SB 510 also outlines that the appointed manager must have at least two years of full-time real estate experience in the five years prior to appointment, and must not hold a restricted license or be subject to debarment. The Commissioner is authorized to suspend or suspend revoke the license of the appointed licensee for failure to properly oversee and supervise operations.

What This Means for Real Estate Practitioners
This Bill will be of interest to employing/designating brokers in that they now must notify the Department of Real Estate of their designations. However, it is also important to note the higher standard to which the appointed branch manager will be held. SB 510 will create accountability that will extend beyond the employing broker and to the manager of the branch. It is anticipated that Regulations will follow to detail the criteria for this statute.

Senate Bull 53: Escrow Transactions

As of now, real estate brokers engaging in certain escrow activities are required to make certain disclosures and recordings regarding those activities. Beginning on July 1, 2012, Business and Professions Code Section 10141.6, et seq., will be amended regarding real estate brokers who, pursuant to the exemption from the Escrow Law contained in Section 17006 of the Financial Code, engage in escrow activities for five or more transactions in a calendar year or whose escrow activities equal or exceed one million dollars in a calendar year. Within 60 days of the completion of the calendar year, those brokers subject to this section will be required to file a report with the Department of Real Estate documenting the number of escrows conducted and the dollar volume escrow was during the calendar year in which the threshold was met. Those brokers who fail to submit the required documentation will be assessed per diem penalties that will continue to increase until the Department receives the report. Further, if those penalties are not paid, the Commissioner may suspend or revoke the license of the offending broker.

What This Means for Real Estate Practitioners
SB 53 is important as it applies to brokers who may find themselves reaching the statutory limits outlined in B&P Section 10141.6, et seq. It is essential to keep track of any amendments in legislation that may change the way a real estate practitioner conducts business. SB 53 is a bill that goes on to amend other sections of the Business and Professions Code with regards to the Real Estate Law and will thereby interest agents and brokers alike. It can be found in its entirety at www.leginfo.ca.gov.

Senate Bill 837: Changes to Transfer Disclosure Statement

Existing law requires that, “on or before January 1, 2017, a single-family residential property built on or before January 1, 1994, be equipped with water-conserving features…” Such features include low-flow toilets, showerheads, and faucets (pursuant to Civil Code § 1101.3). Beginning January 1, 2012, SB 837 will make amendments to the Transfer Disclosure Statement (TDS) to disclose whether the property is equipped with these water-conserving plumbing features. (CAR will publish a new TDS form in November, 2011 that will contain this disclosure.)

What This Means for Real Estate Practioners
The amendment of Civil Code Section 1102.6 to include the disclosure of water-conserving features is one more item for real estate practitioners to look out for when assisting their clients with the TDS. Whether filling out the form or reviewing it, it is important to note whether these items are checked, so your client either knows what they need to do to the property in the future (as buyers), or, if they are already installed, what is increasing the value of the home (for sellers).

Senate Bill 4: Changes to Notice of Sale

Current law requires lenders to file Notices of Default in the case of nonjudicial foreclosure prior to enforcing the power of sale as a result of a default on an obligation secured by real property. Further, a Notice of Sale is to be given and recorded prior to exercising the power of sale. Effective April 1, 2012, SB 4 will now require additional language on the Notice of Sale notifying potential bidders of the risks and liabilities of bidding at the auction, as well as where they can find additional information regarding these risks. The Notice of Sale will also contain language for the property owner regarding how to obtain information about sale dates and postponements. This information is required to be provided by any means that provides continuous access.

What This Means for Real Estate Practitioners.
The changes in the Notice of Sale do not necessarily affect the salesperson, broker or their business directly, but keeping up with the changes will also help you to keep up with current trends in real estate and potentially the market.

These four bills are not the only new legislature that may affect a REALTOR®, real estate agent, or his or her client. As was aforementioned, it is important to keep track of the new laws and changes to existing laws—even those that do not seem pertinent at this exact moment. As an agent or broker, it is essential to be as informed and well-rounded as possible. Keeping up-to-date on the law will better ensure that this is the case.

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More in this newsletter, please download the PDF version for the full release.

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Branch Manager Liability – Governor Signs SB510

BY: SYLVIA J. SIMMONS, ATTORNEY AT LAW
THE GIARDINELLI LAW GROUP, APC
31594 RAILROAD CANYON ROAD
CANYON LAKE, CA
(951) 244-1856 WWW.GLAWGROUPAPC.COM

Existing Real Estate Law requires a real estate broker to obtain a license for each branch office and be liable for supervising the sales agents in that office. If the Department of Real Estate (DRE) requirements are not met, the designated broker risks license suspension or revocation. It is common practice for a broker to employ an office manager to supervise the operations of a branch office. Before passage of Senate Bill 510, a branch office manager did not share the designated broker’s responsibility for violating Real Estate Law if the real estate agents within the branch office were not properly supervised.

Under the new law, to be effective on July 1, 2012, the employing broker or corporate designated broker officer is permitted to contract with an eligible real estate broker or licensed salesperson (manager) to operate a branch office. The manager will be subject to disciplinary action for failure to properly supervise licensed activity of the sales agents and may have her/his license temporarily suspended or permanently revoked for failure to properly oversee and supervise operations of the branch office.

The new law includes the following requirements:

•  The manager must:
  • Hold an unrestricted license,
  • Not be or have been subject to an order of debarment, and
  • If a salesperson, have at least 2 years full-time real estate experience within the preceding 5 years
• There must be a written contract between the designated broker and the manager
• The designated broker must give written notice to the DRE, in a form approved by the commissioner, identifying the manager and branch office or division
• The designated broker must give immediate written notice to the DRE if the manager is changed or terminated

Senate Bill 510 was supported by the California Association of REALTORS®. The law was enacted to make office managers accountable if they fail to properly supervise their sales agents and is expected to ensure that consumers in California are afforded the best practices and highest quality of service from the real estate industry.

Designated brokers who have branch offices should review the qualifications of their branch managers and the provisions of their agreements and policies for compliance with the new requirements, and seek competent legal assistance to revise or create policies and employment contracts that meet the new legal requirements.

Biography
The Giardinelli Law Group, APC, Sylvia J. Simmons, Attorney.
Sylvia J Simmons is a business and transaction attorney at The Giardinelli Law Group, APC. Ms. Simmons has been providing legal services to businesses and REALTOR® Associations, brokers, residential, commercial and vacant land buyers and sellers for more than 14 years. The services she provides include business entity formation, corporate maintenance, buy-ins and buy-outs, succession planning, director disagreements, leases, contracts, employment policies and handbooks, hiring, discipline and termination. Ms. Simmons may be reached atsylvia@glawgroupapc.com or (951) 244-1856.

The Giardinelli Law Group has released their September 2011 Courside Newsletter which is available for you to download. Below is one of the articles in this release.

Please click on the image below for the Courtside Newsletter Spet. 2011

MARS Enforcement Stayed Against Short Sale Listing Agents -REVISIONS TO C.A.R.’s MARS RULE Q&A

BY: SYLVIA J. SIMMONS

The California Association of REALTORS® revised its Q & A on the MARS rule in late August 2011 to reflect the announcement by the Federal Trade Commission (FTC) of its current position regarding enforcing the rule against REALTORS®. As of July 15, 2011, the FTC is generally not seeking enforcement of the Mortgage Assistance Relief Services (MARS) rules against REALTORS® who are simply trying to help their clients complete a short sale.

Short sale listing agents must meet three criteria:

1. Be licensed and maintain good standing under state law;
2. Be acting in compliance with state law governing the practices of brokers and agents; and
3. Be assisting or attempting to assist a consumer in negotiating, obtaining or arranging a short sale of a dwelling in the course of securing the sale of the consumer’s home.

Agents who do not meet these requirements must:

• Provide the C.A.R. form MARSSN when they take short sale listings
• Provide the C.A.R. form MARSSN when they obtain a lender approval letter
• Include general commercial notice in advertisements marketing properties
• Comply with MARS’ other record keeping and monitoring requirements

The following agents must comply with the MARS rules:

• Agents who are pure short sale negotiators
• Agents who promote their services as a way to avoid foreclosure
• Agents who offer various foreclosure and loan related services

Of course, the FTC will enforce the MARS rules against any REALTOR® who engages in unfair or deceptive practices in the handling of a short sale. At this time, the Consumer Financial Protection Bureau (CFPB) is responsible for the rule-making functions of the FTC. The two agencies are required by federal law to coordinate their activities for consistent regulations. Therefore, the CFPB will follow the FTC policy, but the enforcement approach may change in the future.

For the complete MARS rule Q & A, contact the California Association of REALTORS®, or visit their website at www.car.org. For in-depth legal advice regarding the MARS rule or other real estate matters, feel free to contact The Giardinelli Law Group, APC.

C.A.R. releases its California Housing Market Forecast for 2012

Modest increases in both sales and price expected next year

SAN JOSE (Sept. 20) – California home sales and median price are predicted to improve only slightly in 2012, as the continuation of the tepid economic recovery, uncertainty about the future, and funding challenges for residential mortgages are expected to keep the market moving sideways, with little foreseeable momentum in either direction, according to the CALIFORNIA ASSOCIATION OF REALTORS^®’ (C.A.R.) “2012 California Housing Market Forecast” released today.

The forecast for California home sales next year is for a slight 1 percent increase to 496,200 units, following essentially flat sales of 491,100 homes this year compared to the 491,500 homes sold in 2010.

“Despite the run of unforeseen global events in the first half of this year that slowed the overall economy, 2011 home sales are projected to essentially remain unchanged from last year,” said C.A.R. President Beth L. Peerce. “Looking ahead, the fundamentals of the housing market – such as low mortgage rates, high housing affordability, and favorable home prices – are expected to continue, but at this point, a strong housing recovery will depend on consumer confidence, job creation, and the availability and cost of home loans.

“Discretionary sellers will play a larger role in next year’s housing market,” said Peerce. “Those who held off selling in 2011 may list their homes in 2012, thereby improving the mix of homes for sale compared with the last few years. Additionally, distressed sales will remain an important segment of the overall market as lenders continue to work through the foreclosure process.”

The California median home price will increase 1.7 percent in 2012 to $296,000 in 2012, according to the forecast. Following a double-digit increase in the median price in 2010, the median home price will decrease a projected 4 percent in 2011 to $291,000.

“2012 will be another transition year for the California housing market, as the continued uncertainty about the U.S. financial system, job growth, and the stability of the overall economy remain in the forefront for all market participants,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “An improvement in job growth, consumer spending, and corresponding gains in housing are essential to a broader recovery in the economy, but would-be buyers will remain cautious as they weigh these myriad uncertainties against the clear opportunities presented by today’s very affordable housing market.

“The most likely scenario is for the modest recovery to continue, and this should push sales up slightly next year by 1 percent and maintain levels that are significantly higher than those recorded during the depths of the housing downturn.

“The wild cards for 2012 are many, including federal, fiscal, monetary, and housing policies; the contentious political climate during an election year; and the strength of the U.S. economic recovery,” said Appleton-Young.

Appleton-Young will present an expanded forecast Wednesday afternoon during CALIFORNIA REALTOR^® EXPO 2011 (http://expo.car.org/), running from Sept. 20-22 at the San Jose McEnery Convention Center in San Jose, Calif. The trade show attracts nearly 6,500 attendees and is the largest state real estate trade show in the nation.Don’t miss “Why Lenders Can’t Lend: The Economic Perspective” during CALIFORNIA REALTOR^® EXPO 2011. C.A.R. Vice President and Chief Economist Leslie Appleton-Young will moderate a panel of renowned economists as they delve into the front- and-center issue facing the market and REALTORS^® next year. The panel is scheduled to be held Thursday, Sept. 22, from 2 p.m. – 3:30 p.m. at the San Jose Convention Center.

2012 FORECAST FACT SHEET

f=forecast

Leading the way…® in California real estate for more than 100 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with more than 160,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.

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May 25, 2011, Santa Ana, Calif. ‒

— Potential Losses Expected to Exceed $375 Million in 2011 —

CoreLogic (NYSE: CLGX), a leading provider of information, analytics and business services, today announced the release of its 2011  Short Sale Research Study, “CoreLogic Analysis on Short Sale Trends, Risks, and Opportunities.” The study was designed to take a  rigorously scientific, data-driven look at current trends in short sales and to identify inherent risks and opportunities associated with  these transactions.

“Suspicious” short-sale transactions are those where a lender may have incurred unnecessary losses due to the short sale transaction  quickly followed by a resale transaction for a substantially higher price where that higher price is not supported by an underlying increase in property value. The focus of the study was to quantify the potential losses associated with these suspicious short-sale transactions.

“Short sale volume has tripled in the past two years, and with approximately 1.7 million seriously delinquent loans, I expect volume to grow again in 2011,” said Craig Focardi, senior research director, consumer lending at The TowerGroup. “Identifying risk and monitoring distressed asset sale trends is absolutely essential for lenders to preempt potential losses.”

“This study reveals that short sales that show another sale transaction closing on the same day account for 16 percent of all suspicious short sales in the industry. These same-day resales are on average $50,000 greater than the lender agreed upon short sale price,” said Tim Grace, senior vice president of Product Management and Analytics at CoreLogic. “The study also validates an industry perception  related to Limited Liability Company buyers in short-sale transactions: while they comprise only two percent of all buyers, they comprise more than 25 percent of buyers in suspicious short-sale transactions. The CoreLogic Mortgage Fraud Consortium provides a unique forum for lenders to share real-time data about pending and closed short sale transactions – offering a national, industry-wide  perspective that is essential in identifying the suspicious short sales transactions for lenders and servicers before they occur.”

CoreLogic 2011 Short Sale Research Study Highlights

Following are key findings from the study:

It is estimated that lenders, servicers and investors may incur potential losses in excess of $375 million in 2011 due to suspicious short sale transactions. This is up more than 20 percent from $310 million in estimated losses for 2010. Rates of suspicious transactions are on the rise. In the first half of 2010, approximately one in every 52 (1.9 percent) short sale transactions appears to be suspicious, wherein the lender may have incurred unnecessary loss.

Some of the states with the largest short sale volume (California, Arizona, Colorado and Florida) are now the same states with the highest rates of suspicious short-sale transactions. This convergence results in maximum negative impact on the industry.

Consortium analysis and reporting are necessary to mitigate risk and fully leverage data and experiences across multiple lenders.

For the study, CoreLogic examined over 450,000 single family residence short sale transactions completed in the past three years. In addition, the company accessed its proprietary repository of empirical mortgage loan data available for risk analysis, which is owned by CoreLogic and contains over 90 million historical loans from lenders throughout the country, including confirmed and suspected fraudulent loans. The breadth of this CoreLogic-owned data covers 65 percent of the origination market including Federal Housing Administration (FHA), conventional, jumbo and prime lending, making it the largest database of its kind in the nation. This large  collection of historic and current data provides CoreLogic with the unique ability to analyze segments of transactions, such as short sales, with tremendous precision.

To obtain a copy of “CoreLogic Analysis on Short Sale Trends, Risks, and Opportunities,” visit http://www.corelogic.com
/shortsalestudy.

About CoreLogic

CoreLogic (NYSE: CLGX) is a leading provider of consumer, financial and property information, analytics and services to business and government. The company combines public, contributory and proprietary data to develop predictive decision analytics and provide business services that bring dynamic insight and transparency to the markets it serves. CoreLogic has built the largest U.S. real estate, mortgage application, fraud, and loan performance databases and is a recognized leading provider of mortgage and automotive credit reporting, property tax, valuation, flood determination, and geospatial analytics and services. More than one million users rely on CoreLogic to assess risk, support underwriting, investment and marketing decisions, prevent fraud, and improve business performance in their daily operations. Formerly the information solutions group of The First American Corporation, CoreLogic began trading under the ticker CLGX on the NYSE on June 2, 2010. The company, headquartered in Santa Ana, Calif., has more than 10,000 employees globally with 2010 revenues of $1.6 billion. For more information visit www.corelogic.com.

CoreLogic is a registered trademark of CoreLogic.

By: J Niswonger, Riverside County Office

There is some good news for homeowners who have to sell their properties for less than they owe (known in the industry as short sales).  The California Legislature has passed Senate Bill 458, which mortgage holders from seeking to recover additional money from the seller after approving a short sale.  This month’s newsletter addresses the effects of Senate Bill 458 and the benefits to homeowners of this change to an existing statute.

Senate Bill 458 was signed by Governor Brown on July 11, 2011 and filed with the Secretary of State on July 15, 2011.  The Bill modifies Code of Civil Procedure Section 580e and, by its terms, takes effect immediately.  The most significant effect of this new law is that now any bank or other lender that holds a note secured by real property (i.e., a mortgage) may not seek to recover a deficiency on that note after a short sale.  That is, lenders who approve a short sale are entitled to receive only the money received through the sale of the property and may not collect any remaining balance from the seller.  Previously, only the holder of the first mortgage was prohibited from recovering a deficiency.  Thus, before this law recently changed, second mortgage holders (and other junior lenders) commonly approved short sales on the condition that they retain the right to recover from the seller any balance owed after the sale.  This practice is now illegal.

To illustrate, assume that a seller owes $350,000.00 on a first mortgage, and $60,000.00 on a home equity line of credit (HELOC).  Assume also that a buyer offers to purchase the property for $200,000.00, and the first mortgage holder offers to pay the HELOC lender $10,000.00 to approve the sale.  Before the law was amended, only the first mortgage holder was prohibited from recovering additional money from the seller (i.e., it could only receive the proceeds from the short sale, which, in this example would be $200,000.00 minus $10,000.00 to the HELOC lender minus costs and real estate commissions).  A HELOC lender in this situation, however, would often include a provision in the short-sale approval that gave it the right to recover from the seller the remaining amount owed ($50,000.00 in this example).  Junior lenders, such as the HELOC lender in this example, can no longer recover any money outside of the short sale.  Like first mortgage holders, a junior lender that approves a short sale now receives only the money it agreed to receive under the terms of the short sale.

Under the law as amended, junior lenders cannot even ask sellers to contribute additional funds as a condition of approving the short sale.  Thus, in the example above, the HELOC lender may not ask that the seller agree to contribute any additional funds as a condition of approving the short sale.  Previously, junior lenders often negotiated with sellers to receive an additional lump sum payment to satisfy the obligation in full.  For example, lenders like the HELOC lender above regularly negotiated an additional $5,000.00 or $10,000.00 from the seller with the promise that the loan would be treated as paid-in-full.  This practice is no longer allowed.

Like the original, the modified law continues to apply only to dwellings of four units or less.  Unlike the original statute, however, the new law distinguishes between loans that are secured “solely” by the property subject to the short sale and those that are secured by additional collateral (either other real property or personal property).  If the loan is secured “solely” by the property subject to the short sale, the lender may not recover any deficiency.  If the loan is secured by other property as well, then a lender may recover a deficiency only to the extent that a deficiency would have been available if the property had been sold through non-judicial foreclosure (see our September 2009 Courtside Newsletter for a discussion of judicial and non-judicial foreclosures).

The amended statute retains the exceptions for fraud and waste that were in the original version.  This allows lenders to recover compensation from sellers who try to defraud lenders or who damage the property.  An example of fraud would be if the seller received money from the buyer outside of escrow.  The amended law also retains exceptions for sellers that are corporations or “political subdivisions of the state,” and adds exceptions for limited liability companies and limited partnerships.  The result of these exceptions is to make the law applicable only to sellers who are natural persons.

IS THE LAW RETROACTIVE?

Senate Bill 458 officially became law on July 15, 2011 when it was filed with the Secretary of State, and applies to all short sales after that date.  Questions arise regarding whether the amended statute provides any protection for sellers who completed short sales before July 15, 2011, or for sellers who entered into short-sale agreements before July 15, 2011 with escrow closing after that date.  The analysis of whether a law is retroactive is complex, and involves a number of considerations beyond the scope of this newsletter.  It appears, however, that the revised law will protect many sellers who closed escrow before July 15, 2011 or who entered into contracts before that date.

The precise wording of the amended statute states, “No deficiency shall be owed or collected, and no deficiency judgment shall be requested or rendered for any deficiency. . . .”  Based upon this wording, a reasonable argument may be made that a lender who has not yet obtained a deficiency judgment will be prohibited from recovering any deficiency from a seller.  This analysis is consistent with current California court determinations regarding whether and to what extent a statute is retroactive.  It is possible that the words “no deficiency shall be owed or collected,” may even prevent lenders from collecting existing deficiency judgments.  How the courts will determine these issues, however, remains to be seen.  The legislative history of this amendment strongly suggests that the lawmakers intended immediate protection for all sellers, including those who do not yet have judgments against them.  The Giardinelli Law Group is currently vigorously defending deficiency claims based on the interpretation that such claims are absolutely barred as of July 15, 2011.

A LIKELY REPERCUSSION OF THE NEW LAW

Nothing in the amended law requires junior lenders to agree to a short sale.  Thus, it will likely likely be more difficult in the future to convince junior lenders to approve a short-sale offer.  Instead of accepting a fraction of the amount owed by approving a short sale, junior lenders may prefer to allow the property to go into foreclosure and pursue a deficiency judgment after the foreclosure sale (see our September 2009 Courtside Newsletter for a discussion of when a junior lender may seek a deficiency after a foreclosure sale).

Also, junior lenders may initially withhold approval of a short sale in the hope that the seller may offer additional compensation as an incentive for the lender to sign the short-sale approval.  While the law specifically states that junior lenders “shall not require” the seller to pay additional compensation, nothing in the law prohibits sellers from voluntarily offering additional compensation.  Whether such a tactic is permissible will likely be the subject of future court decisions.

Senate Bill 458 closed a large loophole in short-sale law, but while it provides important protections for sellers, it creates a likely cost that fewer short sales will be approved by junior lenders.  Only time will tell whether this law will have a positive impact on the current mortgage crisis.

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 Biography

J Niswonger is the senior litigation attorney at The Giardinelli Law Group, APC.  Mr. Niswonger has been a general civil litigator for more than 18 years, and has litigated real estate matters for more than 16 years.  In addition to his litigation experience, Mr. Niswonger has successfully mediated a significant number of real estate cases.  Mr. Niswonger may be reached at jniswonger@glawgroupapc.com or (951) 244.1856.

This Newsletter is a copyrighted publication and may not be reproduced or transmitted in any form or by any means without written permission.  This article does not necessarily reflect the point of view of the Giardinelli Law Group, APC, or other person or entity who publishes it.  This article provides legal information abridged from statutes, court decisions, and administrative rulings and contains opinions of the writers.  Legal information is not the same as legal advice, which is the application of law to an individual’s specific circumstances.  Although every effort is made to ensure the information is accurate and useful, it is recommended that you consult with a lawyer to obtain professional assurance that the information provided and your interpretation of it is appropriate for a particular situation. To request further information or to comment on this newsletter, contact us at (951) 244-1856 and visit our website at www.glawgroupapc.com.

LOS ANGELES (Aug. 23) – California pending home sales dipped in July, as did the share of sales of distressed properties, the CALIFORNIA ASSOCIATION OF REALTORS^® (C.A.R.) reported today.

Pending home sales:

Pending home sales in California fell 1.7 percent in July, according to C.A.R.’s Pending Home Sales Index (PHSI)*.  The index was 117.0 in July, down from June’s index of 119.0, based on contracts signed in July.  The index was up 4.9 percent from July 2010.  Pending home sales are forward-looking indicators of future home sales activity, providing information on the future direction of the market.

“While pending home sales dipped in July, all indications show we should continue at the current level for the next couple of months,” said C.A.R. President Beth L. Peerce.  “Pending sales have been ahead of last year’s level for the past three consecutive months and should be on track to finish the year even with last year’s pace.”

Distressed housing market data:

• The total share of all distressed property types sold statewide fell to 44.5 percent in July, down from June’s 46.9 percent.  The share of distressed sales also was down from a year prior, when distressed sales totaled 47.7 percent of all home sales.
• Of the distressed properties sold statewide, 17.5 percent were short sales, a decline from last month’s share of 19.3 percent and last July’s share of 20.9 percent.
• At 26.7 percent, the share of REO (real estate-owned) sales was down from June’s 27.3 percent figure, but was up slightly from the 26.3 percent reported in July 2010.
• Non-distressed sales made up the remaining share of home sales in July at 55.5 percent, up from 53.1 percent in June and 52.3 percent in July 2010.

Multimedia:

• View a video of Sara Sutachan, C.A.R.’s senior research analyst, discussing highlights of the July existing home sales and price report, which was released August 15.
• View a chart of pending sales compared with closed sales.

Share of Distressed Sales to Total Sales
(Single-family)

Single-family Distressed Home Sales by Select Counties
(Percent of total sales)

*Note:  C.A.R.’s pending sales information is generated from a survey of more than 70 associations of REALTORS® and MLSs throughout the state.  Pending home sales are forward-looking indicators of future home sales activity, offering solid information on future changes in the direction of the market.  A sale is listed as pending after a seller has accepted a sales contract on a property.  The majority of pending home sales usually becomes closed sales transactions one to two months later.  The year 2008 was used as the benchmark for the Pending Homes Sales Index.  An index of 100 is equal to the average level of contract activity during 2008.

Leading the way…® in California real estate for more than 100 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with more than 160,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.

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