8:00 a.m. - 11:30 a.m. Thursday May 5, 2011 Sacramento Convention Center
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 issue areas:
Licensure Liability and Risk Management Real Estate Finance Transactional
Each issue area is managed during the Committee's meeting by an Issue Chair, under the direction of a committee Chair and committee Vice-Chair. The Committee has jurisdiction over issues that are potentially real estate related that do not fall into another committee's jurisdiction. The Committee reports to the Legislative or Federal level of government committee(s), as appropriate, and to the Executive Committee and the Board of Directors. (October 2010)
Presiding: Steve Rosco, Chair Tim Brigham, Vice Chair
Issues Chairs: Roseanne Howard, Risk Management and Liability Barbara Delgleize, Transaction Virginia Butler, Real Estate Finance Dennis Pantano, License and Regulatory
Liaisons: Ruth Hayles, Executive Committee Jeff Barnett, NAR representative
Staff: Stan Wieg Matthew Roberts
I. Introductions and Welcome - Steve Rosco, Chair
II. Legislative Update - Staff update A. Legislature and state budget developments B. Recap of Legislative Day C. Member mobilization - Update on Broker Involvement program and mobilization activity by DeAnn Kerr, mobilization consultant.
III. Action Items A. Real Estate finance - Virginia Butler, Issues Chair
1. State issues a. SB 729 (Leno) - Foreclosure procedure Under existing law, expiring January 1, 2013, a mortgagee most notify a borrower that their mortgage is in default 30 days in advance of the recording of a notice of default (NOD). SB 729 would create additional steps that a lender must complete prior to recording a NOD. Under this measure a mortgagee would be required to examine all possible foreclosure mitigation options prior to foreclosing. A borrower that is in default, prior to the recording of a NOD, shall be contacted by the lender and informed of their foreclosure mitigation options and provided a 45 days deadline for the borrower to submit a loan modification application. Once an application is received a lander may not proceed with recording a NOD until a decision has been rendered on the borrower's application, at which point the lender may either proceed with the modification or provide the borrower with a denial explanation letter. SB 729 would require a lender who has complied with the above provisions to include a declaration of compliance with the NOD that is recorded. This measure would also allow, if the provisions of this measure are not complied with, for a borrower to stop of trustee sale or recover damages, attorney's fees and costs from their lender.
b. AB 1321 (Wiekowski) - Recording of deeds of trust Recording an interest/encumbrance against real property gives constructive notice to all of an interest in the property, and establishes "first in time" priority, but is not required. AB 1321 would require a mortgage or deed of trust to be recorded against a property within 30 days of their execution, although no penalty is specified. It would also prohibit a mortgagee from recording a notice of default for a mortgage or deed of trust until 45 days after the deed or mortgage document has been recorded. This measure would prevent use of the so-called MERS system that allows lenders and investors to transfer notes and other interests in real property amongst themselves without recording each transfer.
c. SB 376 (Fuller) - Financing personal property manufactured housing Existing law defines a "real estate broker" scope of practice to include a person who, for a fee, negotiates, solicits or assists in the sale or purchase of real property or solicits or negotiates loans for the purchase of real property. SB 376 would expand the definition of a "real estate broker" to include individuals who deal with mobile home loans. This measure would allow manufactured housing dealers to use a mortgage loan originator endorsement on their real estate license to originate financing for personal property mobile homes remove the need for an additional licensing requirement for brokers who deal with mobile home loans.
2. Federal issues a. GSE Refinance Legislation (Boxer; Cardoza) - Update on the progress of two pending federal bills to restructure and preserve the function of Fannie and Freddie.
b. Recommendations of the C.A.R. Distress Property Task Force - Proposed federal legislation was heavily debated in Transaction and Regulatory Committee and Federal Committee in January. Transactions committee approved a series of recommendations for federal legislation, but Federal Committee did not. Executive Committee referred all of the issues back to the Task Force, with the caveat that C.A.R. Leadership might act as needed on the proposals between meetings. The Task Force considered the issues in light of additional material and recommends the following items i-v
i. Mark-to-Market*Please see included issues briefing paper. ii. Mandatory Response to Short Sale Request* Please see included issues briefing paper. iii. Subordinate Lien Short Sale Acceptance* Please see included issues briefing paper. iv. Safe Harbor (against investor liability for short sale approval)* Please see included issues briefing paper. v. Lender Recourse on a Short Sale* Please see included issues briefing paper.
3. Other issues
B. License and Regulatory - Dennis Pantano, Issues Chair 1. SB 53 (Calderon), real estate omnibus - C.A.R. has previously supported the legislation, but the bill has evolved in multiple areas.
a. Citation and fine authority - $2500 vs. $1000 - C.A.R.'s sponsored legislation (AB 278) sets a different cap on maximum fine; however, committee leadership has opined that $2500 as a cap is consistent with the intent of the sponsored bill
b. Tolling of license renewal during prosecution - This provision would allow DRE to avoid having to automatically renew a license that they are bringing an action to revoke. The provision would not allow the license to expire and would require the renewal if the revocation action is unsuccessful.
c. Publishing existence of disciplinary action - DRE would be allowed to publish the fact that a disciplinary action is proceeding against a licensee if that licensee "presents a grave risk of harm to the public" and a desist and refrain order has been issued.
2. SB 6 (Calderon), Valuation opinions - review of exemptions Existing law already prohibits a licensee from generating an inaccurate opinion of value of a residential property in order to create an advantage for themselves. SB 6 would replace this provision with a prohibition on 1) intentionally misrepresenting the value of property; or 2) providing a valuation that is the basis for a loan origination or modification if the licensee has an interest in the property being valued, as defined in federal regulation. This measure would also expand the existing law that makes it illegal to try to unduly influence someone preparing a property appraisal to include anyone (including a REALTOR®) preparing a "valuation" on a property. C.A.R. supports this measure and is seeking clarifying amendments to avoid inadvertent impacts on BPOs.
3. SB 706 (Price), Business and Professions Committee bill on DRE - This legislation results from the Committee's oversight hearing of DRE and is designed increase consumer protection. As of time of publication, amendments have not been revealed, but will include:
a. Pre-prosecution settlement authority b. Costs of enforcement included in discipline c. Merging OREA (Office of Real Estate Appraisers)
C. Risk Management and Liability - Roseanne Howard, Issues Chair 1. AB 37 (Huffman) - "Smart Meter" opt out [see Land Use and Environmental materials]* Please see included Issues Briefing Paper. The bill is designed to allow a home owner to opt out of having a "smart" meter installed by an electric utility. The Marin Association of Realtors® has requested a support position. 2. Other
D. Transactions - Barbara Delgleize, Issues Chair 1. Disclosure of marijuana cultivation* Please see included Issues Briefing Paper. The Lake County Association of Realtors® has requested a discussion of transaction related implications of marijuana cultivation. 2. Other
E. Other Action Items and Proposals
IV. Reporting Items
A. Sponsored Legislation 1. SB 150 (Correa) - Right to Rent Common Interest Development unit** This measure, is a re-introduction of C.A.R.'s AB 2259 (Mullin) of 2008 and protects the right of a CID unit owner to rent his or her unit, if that right existed at the time the owner purchased the unit. Status: Senate Transportation and Housing Committee
2. SB 458 (Corbett) - Anti-Deficiency protections C.A.R.-sponsored SB 458 revisited the "anti-deficiency" issue of SB 1178 (Corbett, 2010), which was vetoed by Governor Schwarzenegger. As introduced SB 458 would have extended existing anti-deficiency protections to cover the refinance of purchase money mortgages that include debt (cash out) incurred to acquire, construct or improve the home. C.A.R. and the lender groups have reached an agreement to amend SB 458 to instead expand the provisions of existing law (SB 931 of 2010) which became effective this year. Existing law (SB 931) requires a first mortgage holder to accept an agreed upon short sale payment as full payment for the outstanding balance of the loan, but does not apply to junior lien holders. SB 458 will extend the protections of SB 931 to junior liens effectively providing that any lender that agrees to a short sale must accept the agreed upon short sale payment as
full payment of the outstanding balance of
all loans. Status: Senate Judiciary Committee
3. SB 510 (Correa) - DRE designated manager rule Under current law, the Department of Real Estate (DRE) is only permitted to hold the broker of record accountable for any misconduct of a salesperson, even if the broker of record has delegated supervisorial responsibility to an office manager. C.A.R. is sponsoring SB 510 which would establish a designated office manager requirement for those licensees managing real estate offices. Under this legislation, a broker of record would be permitted to appoint an eligible real estate broker or salesperson to supervise branch office operations, provided that a contract detailing the duties and responsibilities to be performed by the office manager is delivered to DRE. The bill will allow DRE to create an office manager registration form for principal brokers to use to notify the DRE of their office manager appointment. DRE will also be able to discipline managers for failing to properly supervise the licensed activities within their jurisdiction. Principal brokers remain accountable for their own supervisorial responsibilities. Status: Senate Business, Professions and Economic Development Committee
4. SB 837 (Blakeslee) - TDS water device disclosure conformity SB 407 (Padilla), signed into law by the Governor in 2009, requires that all residential properties be retrofitted with low-flow toilets, shower heads and faucets starting with remodels in 2014, all remaining homes by 2017. Additionally, all commercial properties and multi-family homes will need to be retrofitted by 2019. C.A.R. is sponsoring SB 837 to add language to the Transfer Disclosure Statement (TDS) notifying the purchaser of a property of these impending requirements. The inclusion of this information in the TDS will ensure that sellers and buyers are aware of these water efficiency retrofit requirements and provide disclosure liability protection to REALTORS®. Status: Assembly
5. AB 278 (Hill) - DRE citation and fine authority Currently, real estate licensees subject to discipline for any violation must go through the Department of Real Estate's (DRE) administrative hearing process. Notice of discipline, no matter how minor the infraction, is published in the DRE bulletin, widely circulated among real estate agents. AB 278 would allow the DRE to issue a "civil citation" with a maximum fine of $1,000 for minor infractions. Licensee would be permitted to contest the citation through the current hearing process. The action would not be published in the DRE bulletin, unless there is a contested hearing and judgment, although it could still be discovered in the public record. C.A.R. is sponsoring this legislation so DRE field staff can take immediate action on minor infractions without having to complete the lengthy and expensive hearing process. Status: Assembly Business, Professions and Consumer protection Committee
6. AB 392 (Alejo) - Public agency agenda (Brown Act) reform** The Brown Act currently requires local government entities to post their agendas 72 hours in advance of scheduled meetings; however there is no requirement that staff reports be similarly posted and the Brown Act can be satisfied by posting a hard copy of the agenda at a location accessible to the public. This can present a formidable obstacle for individuals and organizations attempting to follow the actions of local governments. C.A.R. is sponsoring AB 392 which would require all local government entities governed by the Brown Act to post their agendas as well as staff reports relating to agenda items on their website (if they have a website - the measure does not require the establishment of a website). Requiring that agendas and staff reports be posted on the locality's website will allow individuals and organizations to more easily track proposed governmental actions. Status: Assembly Local Government Committee
7. AB 771 (Butler) - Common Interest Development document fees** Home Owner Associations (HOAs) are required by law to provide specific documents to prospective purchasers of homes in common interest developments (CIDs). Current law prohibits HOA's from charging fees in excess of what is "reasonable" based on the actual cost of processing and producing these documents. HOA's are increasingly delegating document preparation to outside third party vendors or contractors that, under a 2007 4th Appellate District Court decision, are not subject to this fee limitation. This delegation of responsibility by HOA's sometimes results in home purchasers being forced to pay additional fees which are "bundled" with the document costs. C.A.R.-sponsored AB 771 specifically provides which disclosures are required to be provided to a prospective HOA unit purchaser. This measure also states that ONLY fees for the required documents can be charged upon receipt, effectively prohibiting the bundling of fees with other documents which can be paid for at close of escrow or as agreed upon by the parties. Status: Assembly Housing and Community Development Committee
8. Broker pre-license experience clarification (2012 legislation) C.A.R.'s Board of Directors directed C.A.R. to pursue legislative opportunities, as they arise, to clarify the law to require "degree brokers" to have an undergraduate degree in real estate or two years of "general real estate" experience. C.A.R. is actively seeking an opportunity to insert the proposal in appropriate legislation; if legislative opportunities do not present themselves in 2011, C.A.R. will "SPONSOR" legislation to achieve the change in 2012. [**C.A.R. sponsored legislation in other committees]
B. Real Estate finance - Virginia Butler, Issues Chair 1. Federal issues
a. GSE Reforms status update Fannie Mae and Freddie Mac (Government Sponsored Enterprises or GSE) have now been under the conservatorship of the Federal Housing Finance Agency (FHFA) since September 2008. Reforming these mortgage giants, which guarantee or own roughly 50 percent of all outstanding mortgages, is a top priority for both sides of the isle in the new Congress.
While this is a priority for Congress, it is unknown what shape GSE reform will take. The White House released their GSE reform proposal earlier this year that proposed a quick unwinding of the mortgage giants. There have been many different proposed ideas, but perhaps the toughest question facing the Administration and Congress is what, if any, role should the government play in the housing finance market? Multiple bills have been introduced in the House which has already begun hearings and committee markups of different proposals (
House Subcommittee Hearings: http://financialservices.house.gov/hearings/hearingDetails.aspx?newsid=1837). However, it will likely take the Senate some time to gather the 60 votes needed to pass anything.
b. Loan Limits REALTORS® have successfully extended the current FHA and GSE loan limits on an annual basis since 2008. Congress again extended those loan limits during the last session of Congress. However, unlike prior years where the loan limits were extended for the calendar year, this time Congress only extended the loan limits for the Fiscal Year. This means the current loan limits are set to expire at the end of September 2011.
Due to declining median home prices and an expanding congressional membership who support an expedient shrinking of the government's involvement in the nation's housing market, it may be difficult to extend the loan limits for another year. This is in spite of the damage such a reduction will cause to California's housing market.
FHFA Loan Limits: http://www.fhfa.gov/Default.aspx?Page=185 (Note: FHFA has stated should Congress fail to pass an extension, FHFA will utilize the HERA loan limits). FHA has yet to publish their loan limits should the current limits expire.
d. Condo requirements The FHA has extended their 2010 temporary condo requirements until the end of June 2011. Unless the FHA extends these requirements, which C.A.R. and NAR are requesting, beginning July 1, 2011, the FHA's new condo requirements will be in place. This includes decreasing the FHA concentration from 50 percent to 30 percent; increasing pre-sale requirements from 30 percent to 50 percent; and including vacant and REO properties in owner occupancy requirements. C.A.R., along with NAR, continue to work with the FHA to ease and modify their condo requirements so they are more applicable to today's difficult housing market conditions.
For more information on FHA, Fannie Mae and Freddie Mac's condo requirements you can visit
NAR's GSE and FHA Condo Rules.
e. Seller concessions FHA announced last year they would lower their seller concessions from 6% to 3%. However, recently the FHA reconsidered this proposal and is expected to announce a new proposal. While details have not yet been announced, the new proposal is expected to be more matrix-driven with the details of the transaction determining the level of seller concessions allowed.
f. Qualified Residential Mortgage proposed rule On March 29, 2011, the FDIC held a board meeting during which they approved the-soon-to-be-proposed rule on risk retention, implementing section 941 of the Dodd-Frank Act. Section 941 requires lenders that securitize mortgage loans to retain a percentage of the risk unless the mortgage is a qualified residential mortgage (QRM) or is otherwise exempt. The draft proposes a 60-day comment period after publication in the Federal Register and tentatively indicates a June 10th deadline.
*The proposed QRM rule would require an 80% LTV, which requires a 20% down payment. *The proposed rule would also limit the mortgage payment to 28% of gross income and 36% of all debts. *Mortgage loan qualify as a QRM only if the borrower is not currently 30 or more days past due on any debt obligation. *Borrower must not have been 60 or more days past due on any debt obligation within the preceding 24 months. *Borrower must not have, within the preceding 36 months, been through bankruptcy, foreclosed on, engaged in a short sale or deed-in-lieu of foreclosure, or been subject to a Federal or State judgment for collection of any unpaid debt.
g. SAFE Act seller finance The Department of Housing and Urban Development (HUD) issued a proposed rule on the implementation of the SAFE Act. The proposed rule would exempt from loan originator registration requirements those individuals who offer or negotiate the terms of a loan secured by their own residence. If a property owner did a seller carry back transaction on any other property they own they would be classified as a loan originator and would be subject to the SAFE Act. Both C.A.R. and NAR strongly opposed this proposed rule.
A final rule has not yet been issued, but there was language in the Dodd-Frank Wall Street Reform Act that would allow a property owner to perform three seller carry back finances a year and not be subject to that law. NAR and C.A.R. are hopeful that HUD will see this as congressional intent and issue their final rule accordingly.
2. State issues a. AB 406 (Davis) - ARM Balloon payment prohibition: Laws regulating adjustable rate mortgages secured by a single family residence require written notification to be provided to a borrower informing them of an impending balloon payment 90 days in advance of the last lower payment. AB 406 would prohibit the terms of an adjustable rate loan from allowing balloon payments. C.A.R. is seeking amendments to this measure to limit this prohibition to loans generated through predatory lending, allowing legitimate programs to continue assisting homeowners. Status: Assembly Banking and Finance Committee
b. AB 643 (Davis) - mandatory pre-loan counseling: Currently, a mortgage broker has a fiduciary duty to place the economic interest of a borrower before their own interests. AB 643 would expand this fiduciary responsibility to require a mortgage broker to provide pre-purchase counseling to a borrower, detailing the advantages and disadvantages of their loan options. This measure would also prohibit a mortgagee, trustee or beneficiary from filing a notice of default unless the borrower has been provided with pre-foreclosure counseling explaining foreclosure prevention and negotiation options. C.A.R. is opposed to AB 643 because the ambiguity and breadth of the counseling mandate for both the pre-purchase and pre-foreclosure requirements will make it difficult for loan originators and foreclosing entities to be sure if they have sufficiently discharged their obligations. Status: Assembly Banking and Finance Committee
c. AB 935 (Blumenfield) - $20,000 foreclosure tax: This measure would prohibit a county recorder from accepting a notice of trustee's sale for recordation unless the mortgage servicer pays a foreclosure mitigation "tax" of $20,000. The recorder will hold the money in trust until a trustee deed of sale is filed at which point the money would be deposited into the Foreclosure Mitigation Fund. The funds will be available for a number of purposes including K-12 and community college, public safety, redevelopment, small business loans and mitigating the effects of foreclosure. However, should a notice of rescission be filed with the recorder the $20,000 would be returned to the servicer. C.A.R. opposes AB 935 because it will discourage lenders from extending mortgages to homebuyers. Status: Assembly Banking and Finance Committee
3. Other updates
C. License and Regulatory - Dennis Pantano, Issues Chair 1. State issues - CART (Californians Against Red Tape) and regulatory reform update 2. DRE Commissioner Selection Task Force 3. Other
D. Risk Management and Liability - Roseanne Howard, Issues Chair 1. State issues SB 221 (Simitian) - Small claims jurisdiction increase to $10,000 Under current law small claims courts have jurisdiction over actions in which the demand does not exceed $7,500. SB 221 would expand this demand amount to $10,000. C.A.R. supports this expansion as it would allow more actions which are brought against real estate licensees to be handled in a small claims court. Status: Senate Judiciary Committee
2. Federal issues MARS (federal Mortgage Assistance Relief Services Final Rule) The Federal Trade Commission (FTC) released their final rule on Mortgage Assistance Relief Services (MARS) earlier this year. The purpose of the rule was to protect consumers from unscrupulous MARS providers through better disclosure, marketing rules and record retention. Unfortunately, the FTC's final rule was written in such a manner that instead of capturing only short sale practitioners who are specifically MARS providers, the rule will also cover all real estate agents who list a short sale.
C.A.R. and NAR have both met with the FTC, and while they are aware of this unintended consequence of the rule's language they are not planning on changing the language of the rule. The FTC is working on ways to minimize the rule's impact on members who are merely performing the duties standard to a short sale transaction.
E. Transactions - Barbara Delgleize, Issues Chair 1. Federal issues a. Distressed Properties Task Force
b. Short sale response bill On Tuesday, April 12th, 2011, Representatives Tom Rooney (R-FL) and Robert Andrews (D-NJ) introduced H.R. 1498, the "Prompt Decision for Qualification of Short Sale Act of 2011". This legislation makes it mandatory for mortgage servicers to reply to a short sale application within 45 days of submission. If the servicer fails to provide a decision to the short sale applicant within that time period, the application is deemed approved.
2. State issues a. Lender outreach meetings
b. AB 643 (Davis) - pre-loan and pre-foreclosure counseling Currently, a mortgage broker has a fiduciary duty to place the economic interest of a borrower before their own interests. AB 643 would expand this fiduciary responsibility to require a mortgage broker to provide pre-purchase counseling to a borrower, detailing the advantages and disadvantages of their loan options. This measure would also prohibit a mortgagee, trustee or beneficiary from filing a notice of default unless the borrower has been provided with pre-foreclosure counseling explaining foreclosure prevention and negotiation options. C.A.R. is opposed to AB 643 because the ambiguity and breadth of the counseling mandate for both the pre-purchase and pre-foreclosure requirements will make it difficult for loan originators and foreclosing entities to be sure if they have sufficiently discharged their obligations. Status: Senate Environmental Quality Committee
F. Other Reporting Items
"* " Denotes an item with an accompanying issues briefing paper. "**" Denotes an informational item; lead committee is other policy committee