Marriott Hotel
8 a.m. - 11:30 a.m.
Thursday October 7, 2010
Anaheim, California

Mission statement: The Committee is a Policy committee. Its mission is to develop C.A.R.'s overall policy agenda as it relates to the practice of real estate. It has original jurisdiction to evaluate transactional issues, legislation and regulation in the following issues areas:
Licensure
Liability and Risk Management
Transactional

Presiding:
Liz Claus, Chair
David Barca, Vice Chair

Issues Chairs:
Liability and Risk Management - Timothy Brigham
License - Erik Weichelt
Transactions - Lisa Muetterties

Executive Committee Liaisons:
Annette Graw
   
Staff Coordinator:
Stan Wieg
   
I.  Welcome and Opening Remarks - Liz Claus, Chair

II. Political and Regulatory Overview

A. Member mobilization - DeAnn Kerr
B. State Budget and pending election issues
C. "Real world" examples
D. Considerations in sponsoring legislation
E. Questions

III. Liability Issues and Bills of others - Tim Brigham

A. Bills of Others

1. AB 2654 (Hill) and AB 898 (Lieu) Private solicitations pretending to be official documents - Existing law requires solicitations from non-governmental entities that contain any term or symbol that implies a connection with federal, state or local government to include a notice disclosing that they are not associated with any government agency. These measures would require that notice to be posted in conspicuous, contrasting lettering across the top of the first page of the solicitation, as well as, on the outside envelope or covering.  C.A.R. supports these measures because they will protect homeowners from misleading solicitations which often include real estate related services like mortgage modifications, homestead filings and property tax reassessment services.
Position: Support    Status: Enrolled to the Governor

2. SB 401 (Wolk); SB 14 of the 6th Extraordinary Session (Correa/Calderon); AB 1779 (Niello) Taxation of "phantom income" in short sales – The federal government enacted the Mortgage Debt Relief Act of 2007 which permitted 3 years of mortgage debt relief by not requiring borrowers to pay income tax on debt forgiven in a “short” sale. In late 2008 the federal government extended this relief through December 31, 2012. In 2008, California enacted SB 1055 which provided conformity with the federal statute for the 2007 and 2008 tax years. SB 401, SB 14 of the 6th Extraordinary Session and AB 1779 proposed to fully conform to the federal law which does not require borrowers to pay income tax on debt forgiven in a “short sale” through December 31, 2012. While, C.A.R. supported both AB 1779 and SB 14 of the 6th Extraordinary Session which would have provided phantom income debt forgiveness, C.A.R. did not support SB 401, because it contained other, unrelated provisions.
Position: SB 401 – Watch as Amended; AB 1779 and SB 14 of the 6th Extraordinary Session - Support      Status: (SB 401) Signed into law by the Governor; (AB 1779 and SB 14 of the 6th Extraordinary Session) Died in Committee

3. SB 931 (Ducheny) Short sales and anti-deficiency - Existing law allows a mortgage lender to demand the right to a “deficiency” judgment for the balance due on a note as part of the lender’s negotiations in connection with a short sale. SB 931 requires the first lien holder to accept the agreed upon short sale payment as full payment for the outstanding balance of the loan. The bill does not apply this deficiency protection to junior notes secured by the real property. Lenders do not oppose SB 931 as it would ONLY prohibit a deficiency on a first mortgage note secured by real property when the property is sold in a short sale. C.A.R. supports SB 931 as it does provide deficiency protections for homeowners; however, because this bill does not apply these protections to junior notes, or to foreclosures, C.A.R. believes that it does not go far enough.
Position: Support      Status: Enrolled to the Governor

4. AB 2257 (formerly AB 33, Nava) Financial services super department - A re-introduction of AB 33 from 2009, this bill proposed to abolish the Departments Corporations (DOC), Financial Institutions (DFI), and the Office of Real Estate Appraisers (OREA). AB 2257 would have transferred the powers, duties, purposes, jurisdiction and responsibilities of the DOC and DFI to a newly created "Super Department" of Financial Services. The OREA would have been consolidated into the Department of Real Estate (DRE). The bill also proposed to shift DRE’s regulation of mortgage loan brokerage to the new "Super Department" of Financial Services.
Position: Watch as Amended      Status: Died in the Assembly Banking and Finance Committee

5. AB 2317 (Saldana) Nuisance Abatement Fees - Existing law allows a city or county to establish and collect, with an individual’s property taxes, nuisance abatement fees and administrative costs through property liens or special assessments. AB 2317 would allow, until January 1, 2014, a city or county to collect fines related to nuisance abatement in the same manner in which nuisance costs are collected. C.A.R. originally was opposed to the measure as there was concern that it would conflict with C.A.R sponsored SB 1427 (Price) which pertains to the costs of nuisance abatement. Once it was determined that AB 2317 would not conflict with SB 1427 C.A.R. moved to a Watch on the bill.
Position: Watch as Amended      Status: Enrolled to the Governor
 
6. AB 1720 (Galgiani) "Buyers choice act" disclosure form - The Buyer’s Choice Act, enacted last year (AB 957), currently prohibits an REO seller from requiring a buyer to purchase title insurance or escrow services from a particular title company as a condition of the sale. AB 1720 would have further clarified the Buyer’s Choice Act by requiring the REO seller to provide the buyer with a standardized form which stated the buyer’s right to choose an escrow or title company. The bill clarified that sellers can not make the selection of a title company a condition of the sale. In June, AB 1720 was amended to expand the Buyer’s Choice Act to apply the standardized disclosure to properties being sold in short sales as well as foreclosure sales. While C.A.R. supported the bills concept of preserving the ability to negotiate services, it did not agree that one standardized form can be applied to short sales and foreclosure sales, as the transaction negotiations are very different. C.A.R requested that the bill be amended to limit the disclosure requirement to the sale of properties acquired through foreclosure.
Position: Amend      Status: Failed passage in the Senate Banking, Finance and Insurance Committee

7. AB 2640 (Arambula) and SB 1316 (Romero) IRC 1031 exchanges - These measures would have eliminated state conformity with federal tax law relating to "1031" exchanges. In other words, if these bills were to pass, tax deferred exchanges while still possible for federal tax purposes would not have enjoyed tax deferred treatment for state tax purposes. While AB 2640 would have eliminated tax deferred exchanges all together, SB 1316 would have only eliminated these exchanges if the in-state property was exchanged for a property outside the borders of California. SB 1316 would have sunsetted after one year. C.A.R. opposed these measures because they would have limited the state’s conformity with federal tax law relating to 1031 exchanges.
Position: Oppose      Status: Failed to pass out of the legislature

8. AB 2678 (Fuentes) Prohibits Notice of Sale during pending loan modification negotiations – Existing law requires a mortgage holder to publish a notice of sale prior to a foreclosure sale. C.A.R. supported AB 2678 because it would have prohibited a mortgage holder from giving a notice of sale and foreclosing while the mortgagor was in negotiations for a loan modification.
Position: Support      Status: Failed passage in the Assembly Banking and Finance Committee

9. AB 1809 (Smyth) HERS inspections by home inspectors -The State Energy Resources Conservation and Development Commission recently developed a statewide home energy rating program for residential dwellings, known as the Home Energy Rating System (HERS) Program. AB 1809 would authorize a home inspector who meets the requirements of the HERS regulations to include an energy efficiency inspection or a HERS audit in their home inspection if one is requested by the client. C.A.R. opposed AB 1809 because it emphasized having a HERS inspection at the “time of escrow” which could be interpreted as requiring a HERS inspection during the escrow process. Due to C.A.R.’s opposition the author amended AB 1809 to remove the reference to “time of escrow,” with these amendments C.A.R. removed its opposition.
Position: Watch as Amended      Status: Enrolled to the Governor

10. SB 878 (Liu) Postcard notice of recordation of Notice of Sale (NOD) - Existing law allows the Los Angeles County Board of Supervisors to authorize the Los Angeles County Recorder to mail a notice of recordation of a deed to the property owner within 30 days of it being recorded. SB 878 would, until January 1, 2015, have included notices of recordation for notices of default or notices of sale in the Board’s authorization. This measure also authorized the recorder to charge an additional fee, not to exceed seven dollars, for mailing the recordation notices and/or providing information, counseling or assistance to the party receiving the notice. C.A.R. had a Watch position on SB 878.
Position: Watch      Status: Vetoed by the Governor

11. AB 1949 (Logue) 5-year sunset on regulations - Beginning December 31, 2010, AB 1949 would have required a 5 year review of regulations adopted or amended by a state agency. State agencies would have been required to submit a report to the Office of Administrative Law (OAL) summarizing, among other things, the estimated economic, small business and consumer impact of the regulation, and to propose a course of action for the future of the regulation. The bill also required OAL to make this report available on its website. C.A.R. closely monitored AB 1949, however, it died early in the legislative process.
Position: Watch     Status: Failed passage in the Assembly Business, Professions and Consumer Protections Committee.
 
B. Other Liability Issues

C. Questions

IV. 2010 C.A.R. Sponsored Legislation

A. On the Governor's desk (must be signed or vetoed by September 30):

1. SB 1178 (Corbett) Anti-deficiency for refinanced purchase money debt – Anti-Deficiency rules protect a borrower from personal liability on a purchase money mortgage which goes into default and eventually judicial foreclosure. Due in part to declining interest rates, many purchase money mortgages have been refinanced and have lost their characterization as "purchase money". Homeowners were not informed by the lender that when they refinanced they lost their legal protections and may be personally liable for the difference between the value of the foreclosed property and the amount of the loan. C.A.R. is sponsoring SB 1178 to extend borrowers’ anti-deficiency protections to refinanced purchase money mortgages. This bill originally extended borrowers’ anti-deficiency protections to cover the refinance of purchase money mortgages that included cash out used to substantially improve the property, but was amended to apply only to the refinance of purchase money mortgage with no cash out. The lending industry is opposed. 
Status: Enrolled to the Governor

2. SB 1427 (Price) Local vacant property ordinances – C.A.R. is sponsoring SB 1427 to provide an REO owner notice of a violation of an abandoned property ordinance and opportunity to repair before fines for the violation can attach. SB 1427 requires that the cost of nuisance abatement measures taken by cities be limited to what is actual and reasonable. The measure also requires cities to adopt a schedule of these costs so that property owners will know how much it will cost them if they do not make the repairs themselves and it prohibits cities from imposing liens against a property for nuisance abatements costs prior to the adoption of the cost schedule at a public hearing.
Status: Enrolled to the Governor
 
3. AB 1927 (Knight) HOA right to rent – C.A.R. is sponsoring AB 1927 to re-visit the “right-to-rent issue” of 2008 C.A.R. sponsored legislation (AB 2259 - vetoed).  As introduced, AB 1927 sought to address the concerns raised by the governor in his veto message by requiring two thirds of the unit owners in a CID to approve, by written ballot, any amendment of the governing documents that would prohibit owners from renting or leasing their unit. Prior to the final vote in the Senate on AB 1927, a meeting with the Governor’s staff resulted in C.A.R. making additional amendments to address additional concerns. C.A.R. removed mention of the two thirds requirement and instead authorized each CID to use its own voting approval standards for amending governing documents, as long as it was by a written ballot vote of the CID’s homeowners.
Status: Enrolled to the Governor

B. Previously signed - AB 1762 (Hayashi) Advance fee clarification – In 2009, SB 94 (Calderon) was signed into law to prohibit "cash up front" loan modification contracts. C.A.R. negotiated amendments with the author and DRE to clarify the definition of an advance fee in other sorts of transactions and to ensure licensees’ ability to engage in a fee for service contract. Even with those amendments further clarification was needed. C.A.R. sponsored AB 1762 to clarify the current "advance fee" statute to make clear that “unbundled” fees on “fee for service” contracts do not trigger the advance fee requirements.
Status: Signed by the Governor on July 15, 2010 (Chapter 85, Statutes of 2010)
 
C. Other sponsored bills:

1. SB 206 (Dutton) $8000 homebuyer tax credit – C.A.R sponsored SB 206 would, like federal law, have created a first-time homebuyer's tax credit equal to 10% of the sale price of a home (not to exceed $8,000) for homes purchased as the principal residence of the taxpayer. Due to the state's fiscal crisis, C.A.R.'s Board of Directors at its June 2009 meeting decided to limit this proposed tax credit to REO properties purchased as a principal residence by homebuyers; SB 206 was amended to utilize a funding source from federal stimulus funds instead of the state general fund. Unfortunately, this source proved to be unavailable. Efforts to locate a funding source for this tax credit that did not burden the state's general fund during these tight fiscal times were not successful.
Status: Died in the Senate Revenue and Taxation Committee.

2. SB 1123 (Negrete McLeod) DRE reserves "poison pill” – During the 1990’s the Governor and Legislature raided DRE reserve funds to help balance the budget’s general fund during budget crises. In response, C.A.R. sponsored legislation creates a two part “poison pill” that would roll back licensee fees to 1982 levels if DRE funds were again raided and/or borrowed by the general fund or if DRE reserves are allowed to grow to exceed 18 months. As a part of the 2009 budget bill, the legislature loaned $500,000 from the DRE operating reserve to the Department of Justice to start up a new foreclosure consultant registration program. This loan did not trigger the so-called “poison pill” statute and roll back license fees because the recipient was a special fund agency and not the state’s general fund. C.A.R. sponsored SB 1123 prevents DRE reserve fund transfers (“loans”) to other special fund agencies. According to the finance analysis the bill has a $2 million price tag, dooming its passage in session.
Status: Died in the Senate Appropriations Committee

3. AB 1796 (Hall) AMCs in OREA – Appraisal Management Companies (AMCs) have grown enormously over the last few years, driven primarily by the Home Valuation Code of Conduct adopted by Fannie Mae and Freddie Mac. In 2009, C.A.R. supported SB 237 (Calderon), which was signed into law. It subjects AMCs to registration and review by the Office of Real Estate Appraisers (OREA). C.A.R. sponsored AB 1796 clarifies and enhances OREAs oversight of Appraisal Management Companies, specifically in connection with conflicts of interest, “out of area” appraisers, timeliness and accuracy of work product, and to ensure compliance with other requirements of law applicable to licensed appraisers. While this bill did not become law, the chair of the Assembly Business and Professions Committee, at C.A.R.’s request, committed to an interim hearing on appraisals and AMC’s in the fall.
Status: Died in the Assembly Business, Professions and Consumer Protection Committee

4. SB 1000 (Correa) Portable appraisals – Current law permits, but does not require, lenders to utilize current appraisals ordered by a different lender. C.A.R. sponsored SB 1000 will enact FHA rules that require lenders to accept a "portable" appraisal, with specified limitations, for all transactions at the request of the borrower. Put simply, if an appraisal is ordered and prepared for one lender on a particular property, the second lender would be required to accept that appraisal to support a mortgage even though the lender did not order that appraisal, provided that the appraisal is in compliance with the Uniform Standards of Professional Appraisal Practices and does not contain any material deficiencies. While this bill did not become law, the chair of the Assembly Business and Professions Committee, at C.A.R.’s request, committed to an interim hearing on appraisals and AMC’s.
Status: Died in the Senate Banking, Finance and Insurance Committee

D. Questions

V. Transaction Issues - Lisa Muetterties

A. Sidewalk Repair Requirements – Update on competing proposals.

B. Broker Price Opinions* - Existing California appraisal law excludes from its control any valuation opinions by real estate licensees "in connection with a function for which a license is required." Questions have arisen recently about: 1) whether a salesperson licensee can perform a "broker" price opinion; 2) whether the "BPO" must be limited to situations in which the licensee is representing a conventional buyer or seller; 3) whether compensation for the BPO must flow through the salesperson's employing broker; and, 4) whether the salesperson can perform a BPO independent of the employing broker's supervision and control.

C. First Look Program (Issues Briefing Paper)
Fannie Mae, Freddie Mac and FHA have all implemented a First-Look Program in one form or another designed to prohibit investors from purchasing their REO properties for a specified amount of time and giving homebuyers and community groups an opportunity to purchase those properties.
 
D. Prompt Decision for Qualification of Short Sale Act
On September 15, 2010, Congressman Andrews (D-NJ) introduced H.R. 6133, the Prompt Decision for Qualification of Short Sale Act.”  The legislation would require servicers/lenders to respond to a written request for a short sale within 45 days.  If they don’t respond within 45 days then the short sale request would be considered approved.  The proposed legislation would not preempt timelines contracts between the servicer and investors. 

It is unclear if supporters of this bill will be able to get it through Congress in the limited amount of time left.  

E. Other Transaction Issues

F. Questions

VI. Department of Real Estate Issues - Erik Weichelt

A. Broker Supervision Task Force Report* - The “DRE Broker Supervision Task Force Report” is only available via PDF and may be found by clicking on the following link: Broker Supervision External Report

1. Designated office manager proposed registration* - The DRE Broker Supervision Task Force has just issued its final report, in which it concludes that DRE does not have the authority to discipline office managers for misconduct of a salesperson that reports to them, and instead must pursue the broker of record. The report proposes legislation that would put primary responsibility for supervision of employed sales people on the office manager to whom the salesperson reports. The proposed change would also require the employing broker to notify DRE of the appointment.

2. "Benefit of the Doubt" regulation – Update on DRE program to incentivize the reporting of salesperson’s discharged for misconduct

B. Regulation Update - September 29 hearing on proposed regulations including the following areas: 1) appraisal influence; 2) "Bar" (suspension) orders; 3) license disclosure in advertising; and 4) compensating balances.

C. DRE discipline option (citation and fine)* - DRE can currently issue a (confidential) corrective action letter or a public accusation. After an administrative hearing, DRE can impose a fine under threat of license suspension, suspend or restrict a license, or even revoke a license.  In order to impose a fine, DRE has to go through an administrative hearing process, and any penalty that results becomes part of the record published in the DRE Bulletin. Notes of sanctions in the Bulletin are reportedly widely read, and regarded as a serious blow to a licensee's professional credibility.

D. Mortgage Loan Originator endorsement – Update on DRE license endorsement program

E. Other DRE issues

F. Questions

VII. Introduction of 2011 Committee Leadership

VIII. Adjournment