REALTOR® Risk Management and Consumer Protection Forum
Marquis Ballroom Northeast Marriott Hotel Anaheim, California Friday, October 12, 2007 8:00 a.m. - 11:00 a.m.Presiding:Irene Reinsdorf, Chairman Wes Seastrom, Vice Chairman South Jeff Sposito, Vice Chairman North Tom Carnahan, Committee Liaison C.A.R. Staff:Gov Hutchinson, Assistant General Counsel, Staff Coordinator
Presentation: How to Stay out of Court
Barbara Nichols, owner of Nichols Real Estate & General Contracting, who has served as an expert witness in hundredsof trials, gave a risk management presentation entitled “How to Stay Out of Court”. She began by commenting that when a real estate market slows down there are more lawsuits against real estate practitioners. In general, as the pressure increases to make more sales, the number of forms used in transactions increases and the number of disclosures required multiplies, a REALTOR® faces the prospect of a lawsuit on every transaction. She also noted that the stress and cost of a lawsuit requires all agents to exercise the utmost care in all transactions. She pointed out that errors and omissions insurance does not cover everything, such as mold and mildew relatedissues and there is also the specter of discipline from the Department of Real Estate. Based on her experience as an expert witness, Barbara reported that the number one accusation against real estate agents in court is that they failed to disclose “red flags”. A red flag is anything that would alert someone to a potential problem. A red flag is anything that “does not seem right”. There are visual ones observable on an inspection as well as red flags found in documents. There are also “situational” red flags that REALTORS® are accused of not disclosing, such as a particular builder’s reputation for chimney problems, for example. She strongly recommended that agents make use of C.A.R.’s new Agent Visual Inspection Disclosure form (AVID) when performing a visual inspection. She recommended that agents should start on the outside of the building and walk around it, noting cracks in walls, sloping floors, missing drain spouts, etc. According to Barbara, the agent’s visual inspection should be completely separate and distinct from any other report andshould never be based on the home inspection report. Based on her experience she said that comments that agents should never write on the Transfer Disclosure Statement or the AVID are: “I recommend a professional inspection”, “I agree with everything the seller says”, “The other agent has covered it”, or “Nothing to disclose”.Another area of much liability is in connection with property inspections. Barbara noted that REALTORS® are sometimes accused of recommending a bad inspector. In order to qualify a general property inspector she suggested that a real estate agent should make sure that the inspector is a member of one of the recognized home inspector professional associations, such as the California Real Estate Inspection Association, the American Society of Home Inspectors or the National Association of Home Inspectors, and that the inspector should be committed to following the recent standards of practice of these organizations. The REALTOR® should also make sure that the inspector has errors and omissions insurance by verifying that they have proof of coverage. Finally, a REALTOR® should also determine how much experience the home inspector has and determine if the inspector has been involved in any lawsuits. She noted that you want an inspector that finds everything that is wrong.Barbara next explained that in addition to being accused of failure to disclosure and negligent referrals, REALTORS® are often accused of violating the “standard of care”. The sources for determining what the standard of care is include the rules of Department of Real Estate, California legislation, the NAR Code of Ethics and C.A.R. Standard Forms. She recommended that all REALTORS® be familiar with Civil Code sections2079 and 1102, which are the major source of the duties of a real estate agent in California. She noted that these statutes can easily be accessed at the website http://www.leginfo.ca.gov/calaw.htmlby clicking on “civil code”. Another source of liability for REALTORS® is breach of “fiduciary duty”. This is the legal responsibility real estate practitioners owe to their clients, and it includes fair and honest dealing, loyalty, obedience, accounting, confidentiality, disclosure and reasonable care and diligence. Barbara reported that most of the lawsuits concerning fiduciary duty that she is involved in include accusations of undisclosed dual agency or a licensee acting as a dual agent favoring one side over the other.Barbara then discussed the issue of permits. Although REALTORS® are notlegally required to obtain them, Barbara said that she has never seen an agent sued for getting one, but she has seen them sued on permit related issues when they have not been obtained. She also pointed out that even though C.A.R. forms recommend that buyers obtain permits, they never do so, so she suggested that REALTORS® should request permits and certificates of occupancy. She said that her own practice is to call a permit service and have the service provide the permits to her so that she can provide them to her clients. Alternatively, you can provide the permits to the home inspector. One reason permits are so important, according to Barbara, is that appraisers do notconsider non-permitted square footage.Barbara concluded with some general comments. She said that all disclosures to clients should be put in writing and signed by the clients and that it does not hurt to provide them with multiple documents that say the same thing. She recommended that clients should sign inspections, pamphlets, booklets, etc. She also recommended use of C.A.R.’s Buyer Inspection Waiver form for clients who refuse to get inspections recommended by their REALTOR®. She said that a property profile should always be ordered, a REALTOR® should read all documents and a home warranty policy on the behalf of the buyershould always be ordered. She recommended questioning the seller about neighborhood issues, such as barking dogs and wild parties, and asking the seller to provide all repair records and insurance claims and to disclose what they did with any insurance proceeds. When selling condos she recommended researching to see if the homeowners association is or has been involved in a class action, and if they were and won the case, what did the association do with the money? In other words, did they do the repairs or did they use the proceeds for some other purpose. She noted that it is important to qualify mold inspectors and mold remediators. She recommended being careful when the lender is affiliated with a real estate company because this can result in biased appraisals and that REALTORS® should make sure that lenders are aware of all credits given in a transaction. Finally, she said that REALTORS® are responsible for being aware of all “generally known problems” in a given geographic area.
Darryl Seymour from the California Real Estate Inspection Association (CREIA) made a brief report. He said that REALTORS® can get a list of CREIA inspectors at http://www.creia.organd on that website there are links to the individual websites of CREIA members. He noted that the pass rate for the mandatory exam that must be taken to become a CREIA member is only 42%, which illustrates that an inspector has to be highly competent in order to acquire that membership. In response to a question,he stated that he does not think it is necessary that all home inspectors have a contractor’s license because although it is not a bad thing, home inspecting and contracting are different disciplines and inspectors have to have a greater depth of knowledge. He thinks it is important to know how long an individual has been an inspector as opposed to how long the person has had a contractor’s license. CREIA requires its members to take 30 units per year ofeducation and also offers its own 1 hr DRE approved class regarding home inspections for REALTORS®.Dan Rutherford from the Pest Control Operators of California reported that his association’s website is http://www.pcoc.org and he also recommended looking at another website called http://www.termitetenting.com, which is about fumigation. In response to questionshe noted that orange oil treatment is a local treatment and that Termidor is a good product for whole house fumigation. He said that fumigation is really the only good treatment for subterranean termites.Betty Carter then made a presentation on behalf of the Home Warranty Association of California. Betty said she was glad to take over from Ray Adams as the liaison from Home Warranty Association of California to the California Association of REALTORS®. She made a few comments, including the fact that a lot of REALTORS® and consumers are not aware of “listing coverage” home warranties.Regional ReportsRegion 1 reported on the problem in Humboldt County of individuals using homes to grow marijuana and thereby destroying the properties. Region 3 reported on problems with private transfer taxes in Placer County. Region 14 reported on problems resulting from money being transferred outside of escrow as well as unlicensed assistants doing real estate. She also reported that REALTORS® in that area are having some success dealing with localsign ordinances and local rent control issues. Region 12 reported on problems with predatory lenders taking advantage of senior citizens and others. Region 27 reported that a city in the region is inaugurating a rental housing inspection requirement and that there are also sign ordinance problems in the area. It was also reported that in that region lenders who own REO property are not maintaining the landscaping on their properties and as a resultthe listing agents for the properties are being sent citations from local governments. Region 8 reported on problems with inaccurate square footage numbers both on old public records and from architects. Region 11 inthe Ojai Valley reported on a pollution problem resulting from the fact that gravel mines in that area are being opened with the consequence that approximately 250 trucks per day are coming through on a daily basis. Region 28 in the Palm Springs area reported on private transfer tax problems as well as problems with lenders acting as real estate agents when they do not really know what they are doing. Region 19 reported that cases of lender fraud are still occurringand complained about the unrelenting negative articles on foreclosures in the local press when in reality the market in that region (Santa Clara County) is strong. Region 5 reported on a new lawsuit involving a registered sex offender who was the seller where this information was not disclosed and as a result the children of the new buyer got harassed at school. Gov Hutchinson noted that so far court cases have not required it to be disclosed if the seller of the property is the registered sex offender. It was recommended by a member that there should be a question on the Seller Property Questionnaire asking the seller if the seller is a registered sex offender.Region29 in North San Diego reported on problems resulting from the failure of listing agents to disclose that the property is a short sale. It was also reported that there is a grassroots backlash against casino building in that area. Region 30 reported on the San Diego Gas and Electric utility looking to put in a power line. The regional representative also complained about a point of sale retrofit in the area as well as a ballot measure in El Cajon that would mandate an extremely stringent smoking ban that would even include open public space. The representative also reported on problems with Indian gaming in that area. Region 17 recommending disclosing to clients that building departments are not always particularly competent and are not always accurate when it comes to providing permits. It was also reported that there are eminent domain issues relating to the 405 freeway expansion in LosAngeles and that the county of Los Angeles is looking for sources of money to pay out for lawsuit judgments. Region 10 in the Merced area reported on increased recent collection of business license taxes by localities in the entire central valley because communities in this area need money as a result of the slowdown in the real estate market. Region 3 reported on a proposal in Sacramento to have mandatory annual inspections of rental property funded by an annual feepaid by all landlords. Finally, Region 5 reported on a new local government member forum that deals with business license tax and sign ordinance issues.
Legal and Legislative Update
C.A.R.’s Assistant General Counsel Gov Hutchinson gave his report. Gov began by listing the new legal Q & A memoranda published by the Legal Department in the last few months. He reported that two new Q& A’s regarding predatory lending were released; one explains the relevant federal statute, (federal high cost mortgage disclosure law) and one describes California law (the California covered loan law). There is also a new Q& A on private mortgage insurance and a new Disclosure Chart for trustee/foreclosure sales and REO property sales available on the website. Gov also recommended taking a look at the newly revised Q & A’s on “Taxationof Foreclosures, Deeds in Lieu of Foreclosure and Short Sales”, the “California Withholding Tax”, and “Short Sales” in general. There are also new Q &A’s regarding “Mechanics Liens” and “Avoiding Probate: Small Estates”.Gov then reported on legislation recently signed by the Governor of California. Gov reminded the group that two laws reported on earlier have taken effect since the lastset of meetings. First, effective July 1, 2007, AB 223 requires that all REALTORS® take a course on Risk Management in order to renew their licenses, and effective October 1, 2007, pursuant to AB 2429, the Department of Real Estate will no longer issue conditional real estate salesperson’s licenses. As for new legislation Gov first reported on AB 840 regarding grounds for discipline by the DRE. Gov stated that a year ago he had discusseda case called Petropoulous v. DRE. The background for that case and this new law is the fact that there are two California Business and Professions Code sections that regulate the DRE’s ability to discipline a licensee for committing a crime. Business and Professions Code section 10177 says that the DRE may suspend or revoke a license for someone who pleads guilty or no contest or is convicted of a felony or a crime (misdemeanor) involving “moral turpitude”. Moral turpitude is not specifically defined by statue but one case described it as conduct that constitutes “baseness, vileness or depravity.” Business and Professions Code section 490, which applies to all licensees in California (not just real estate licensees), says that the state of California can revoke a license from someone who has been convicted of any crime “substantially related to the qualifications, functions or duties of the business or profession for which the license was issued”. The Petroulous case held that, contrary to DRE policy, California law requires that in order to discipline a real estate licensee for a crime, the licenseemust have violated both of the above mentioned code sections. In other words, a licensee must have committed a felony or crime involving moral turpitude that was also was substantially related to the functions, duties, etc. of the profession in question. The Department of Real Estate did not like this result because the concept of moral turpitude is somewhat vague and some courts have indicated that certain types of “minor” misdemeanors, such as simple assault and battery, drug possession or certain traffic offenses, do not involve moral turpitude. As a consequence the DRE sponsored this new bill, which was supported by C.A.R. and signed by the Governor. Thus, effective January 1, 2008, the DRE may suspend or otherwise discipline the license of any real estate broker or salesperson who commits any felony or crime “substantially related to the qualifications, functions or duties of a real estate agent”. In other words, it is still required that the DRE satisfy both laws, but the DRE no longer has to prove that the crime involved “moral turpitude”. Therefore, all misdemeanors in California are potentially grounds for discipline against a real estate licensee.Perhaps the most important new law affecting REALTORS® that was signed was AB 980, which pertains to the recording and disclosure of private transfer fees. As a result of this law, effective January 1, 2008 any person or entity who will impose or has in the past imposed a private transfer fee must, in order to continue to receive payment of the fee, record both the instrument creating the transfer fee and a separate notice of “Payment of Transfer Fee Required” in the county recorder’s office in the county where the property is located. (Private transfer fees are typically created by developers to be used forenvironmental compliance or to mitigate ongoing costs incurred with the development of the property). This new “Payment of Transfer Fee Required” document must include the names of all current owners subject to the fee, thelegal description and APN for the property, the amount or percentage of the fee, examples of calculations of the fee, the date and circumstances of expiration of the fee, if the fee does expire, the purpose for which the fees will be used, the entity to whom the fees will be paid and contact information. The title of the notice must be recorded in at least 14 point bold type. In addition to this requirement for the creators and recipients of these transfer fees, effective January 1, 2008 there will also be a new disclosure requirement for sellers of properties subject to such fees. As of that date all sellers who have to provide buyers with a transfer disclosure statement, who have properties subject to a transfer fee, will have to provide a separate disclosure statement regarding the fee to the buyer. For this purpose a transfer fee is defined as any fee that must be paid upon transfer of real property, whether imposed by deed, CC&R’s or other documents, with certain exceptions, including transfer fees imposed by probate, trust, court orders, government agencies, or homeowners associations. The new seller’s disclosure statement must contain a notice that payment is required, the amount of the fee, the entity to which payment must be made, the purpose for which the fees will paid and the date and circumstances of fee expiration, if any. The notice must also provide a description of how the fee is calculated. In response to this law C.A.R. has already created a new form called the Notice of Transfer Fee (NTF) which will be required for sellers effective January 1, 2008. This form contains questions the seller is obligated to answer if the property is subject to a fee.Also effective January 1, 2008 SB 528 requires that when common interest subdivisions managed by homeowners associations schedule open meetings,a mandatory meeting notice must be provided at least 4 days before the meeting, which must include not only the time and place of the meeting but also the agenda for the meeting and unless it is an emergency meeting the board of directors can only discussitems on that agenda. This law, which is codified in Civil Code section 1363.05, contains a few exceptions. For example, non agenda items can be discussed if a non board member wants to address such an item. In addition, a board member or managing agent can address an issue raised by a non board member that is not on the agenda, board members can provide resources to managing agents, board members can request a report from a managing agent fora future meeting, board members can direct the managing agent to perform administrative tasks and by a two thirds vote of board members the board can determine that a non agenda issue can be discussed as long as it is an emergency issue which could not have been included in the agenda.AB 691 is another common interest subdivision law which takes effect on January 1, 2008. Existing law requires that for individuals to call themselves a “certified common interest development manager” those persons must satisfy certain requirements, including 30 hours of course work in common interest development management and either passing an aptitude exam or being certified by a professional association of common interest development managers. This law also requires such managers to disclose certain information to the board of directors on an annual basis, such as whether they have a real estate license, whether they are bonded for the current year’s operating budget and reserve fund and whether they are in fact “certified”. This new law extends these rules, which were scheduled to expire on January 1, 2008, until January 1, 2012. In addition, this law adds to the elements that must be covered in the required course work classes in “management and administration of architectural standards, professional conduct and standards of practice and conflict avoidance and dispute resolution mechanisms.”SB 385 constitutes part of California’s response to the current crisis in the sub-prime lending market. This law authorizes the three California agencies that regulate lending (the Department of Real Estate, the Department of Corporations and the Department of Financial Institutions) to adopt stricter guidelines regarding residential loans on 1 to 4 unit property that contain either adjustable interest rates or interest only payments and\\or will result in negative amortization. It is predicted that these guidelines will be similar to those that are found in California’s predatory lending law, which regulates high interest loans. For example, lenders will probably be required to verify that they have a reasonable belief that the consumer can actually repay the loan (there might be guidelines such as 55% debt to income ratios). Lenders will also probably have to provide clearer statements of likely future payments, and there maybe limitations on prepayment penalties, balloon payments and certain variable rate provisions. In addition, this law also states that effective January 1, 2008 any private individual who makes eight or more loans to the public in a calendar year using that person’s own funds must have a real estate broker’s license if the loans are secured by 1 to 4 residential units. Loans negotiated through a real estate broker will not be affected.Effective January 1, 2008 AB 839 adds “National Guard” members to the other military organizations members of which receivean automatic extension to renew their real estate licenses if they are on active duty. Thus, real estate licensees on active duty with the Army, Navy, Marines, Coast Guard, Merchant Marine and now National Guard may extend their deadline for license renewal to up to 1 year after termination of military service or up to the point they are engaging in real estate licensed activity as long as such licensees notify the DRE within six months of commencing active duty.Effective October 5, 2007, SB 223 increases the regulation of real estate appraisers. Current law states that a licensed appraiser’s compensation can not be based on the commissions generated by sales, purchasesor transfers. This new law states that an appraiser’s compensation can not be dependant upon or affected by the value conclusion generated by the appraisal. In addition, also effective October 5, 2007, anyone with an interest in a real estate transactions is prohibited from improperly influencing, or attempting to improperly influence, through coercion, extortion or bribery, the appraisal process for a mortgage loan. However, it will not be considered to be improper influencing to ask an appraiser to consider additional appropriate property information, to request further details or an explanation of the value determined by the appraiser or to ask the appraiser to correct errors in the appraisal report.Effective January 1, 2008, a Department of Corporations licensed escrow company may charge a fee for cancellation or postponement of the escrow resulting from actions or omissions of the parties to the escrow transaction. In order to be enforceable this fee must have been disclosed in 8 point type on the first page of the escrow instructions and the provision must have been separately initialed by the parties. This billalso requires any escrow company licensed by the Department of Corporations, and any of its directors, stockholders, trustees, officers, agents or employees to comply with Federal Real Estate Settlement Procedures Act (RESPA). Finally,this law provides specific procedures to be followed when an escrow company ceases operations.Effective January 1, 2008, SB 433 extends the homestead exemption under the “residential exemption”, otherwise knownas the automatic exemption, for judgment debtors when the debtor’s separated or former spouse resides in or has possession of the homestead property. Under current law homeowners are protected for a certain amount of equity in their residences as long as the homeowner with a judgment against him\\her, or his\\her spouse, lived in the property at the time the lien attached to the residence and either of them has lived there every since. Under this new law this exemption applies even though neither the homeowner nor his\\her spouse lives in the property, as long as either a “separated spouse”, or “former spouse” either “resides” in the property or exercises control over possession of the property. This change in the law does not allow a debtor to have more than one property as a homestead, however, and does not change the rule that only the homestead of one of the spouses is considered to be exempt, if the debtor and the spouse reside in different homesteads. This law amends California Code of Civil Procedure Section 704.720.Effective January 1, 2008, AB 243 modifies Business and Professions Code Section7091 concerning statutes of limitations for the California Contractors Licensing Board to take disciplinary action against contractors. Under current law the statutes of limitations are four years for negligent actions or omissionsthat were patent or obvious, ten years for negligent actions or omissions that were latent and two years for misrepresentations made in order to obtain the license in the first place. Under this new law disciplinary action for breach of express warranties can be taken within 18 months after the warranty expires, as opposed to just during the warranty period, which is the case under current law. In addition, discipline can be imposed for two years for criminal convictions related to the qualifications, functions or duties of a contractor.Gov then discussed three mobilehome related laws. First, AB 1153 states that, effective January 1, 2008, when applying for a license, prospective and current mobilehome dealers must submit fingerprints and related information to the California Department of Justice which will then check the applicant’s criminal history with the FBI. Second, pursuant to AB446, effective January 1, 2008 the management of a mobilehome park may not require the removal of certain old mobilehomes when they are sold, in order to upgrade the quality of the park, unless the park management provides the homeowner with a notice specifying the condition permitting approval. Finally, SB 538 provides a clear distinction between “manufactured homes” and “mobilehomes”. Beginning January 1, 2008 both manufactured homes and mobilehomes will generally be defined as “transportable structures of certain specifications, with or without foundations”, but by definition a mobilehome was constructed before June 15, 1976 and a manufactured home was constructed on or after June 15, 1976.Effective January 1, 2008, AB 976 states that neither a landlord nor a landlord’s agent may inquire into the immigration or citizenship status of an existing or prospective tenant or occupant. In addition, this law also prohibits any city or county from requiring a landlord or landlord’s agent of residential property to inquire into, or take any action based upon, the immigration or citizenship status of an existing or prospective tenant or occupant. (This law was enacted in response to, among other things, an ordinance passed by the city of Escondido that prohibited landlords in that municipality from leasing property to undocumented aliens). Despite this new law, California landlords may still request information or documentation necessary to determine or verify the financial qualifications of a prospective tenant or to simply identify a prospective tenant or occupant. The statute also prohibits local governments from requiring landlords or their agents to compile, report, or disclose information based on the immigration or citizenship status of a tenant or occupant.Gov then reported that the Legislative Counsel of California has issued an opinion (0724635) reaffirming that any change to a common interest subdivision homeowners association’s governing documents, including adoption of rules necessary to comply with the election requirements of Civil Code section 1363.03, renders unenforceable any provision of the governing documents that prohibits the keeping of at least one pet on the premises. Thus, the no pet prohibition overrides all no pet rules adopted after January 1, 2001, as well as allsuch rules that were in effect on that date if there has been a modification to the governing documents made after that date. The Legislative Counsel was addressing the issue of whether if any of these modifications to the governing documents were “required” rather than optional the result should be different and the Legislative Counsel said “no”.Gov then discussed new and revised C.A.R. Standard Forms. Gov reported that one new standard form was released in August and that two more were released in early November. The new form released in August was the Short Sale Listing Addendum or form SSL. This form is an addendum to a listing agreement and it advises the seller, among other things, that in the transaction that will probably result from this listing the amount of money necessary to pay in full all loans secured by liens against the property exceed the current market value of the property so that in order to sell the property the seller may be required to obtain the agreement of secured lenders to accept as payment in full less money then they are owed. Alternatively, the seller might be required to deposit his\\herown funds into escrow or pay back or some or all of the shortage after the sale is complete. The form also advises the seller that there may be tax and credit consequences resulting from this “short sale” and that the lenderis not obligated to accept it and may impose conditions prior to consideration or approval of the short sale, such as requiring the seller to demonstrate hardship. Finally, this form authorizes the broker to negotiate with the lender on behalf of the seller and it advises the seller to obtain tax and legal advice. A second new form, which will be released in November, also relates to short sales. This new form will be called the Short Sale Addendum(form SSA) and it is intended to be an addendum to a purchase agreement. In essence, what this form does is make any short sale transaction subject to lender approval by a particular date. In other words, this form will create an express contingency, for the benefit of both parties to the transaction whereby both sides agree that the entire agreement is contingent on seller’s receipt, by a particular date, of written consent from all existing secured lenders and lien holders to reduce their loan balances by an amount sufficient to permit the proceeds from the sale of the property to pay the existing balances as well as other costs, including brokerage commissions, without requiring the seller to place any fundsin escrow. On this form the parties would also agree whether the time periods in the purchase agreement for inspections, contingencies etc. should begin as specified in the purchase agreement or on the day after seller delivers to buyer the written notices of the lenders’ consent to the short sale. This form advises the parties that there is no assurance of lender approval, that the buyer and seller may incur costs even if the sale is not approved, and that theseller may continue to market the property.The final C.A.R. form issued this year was the above mentioned Notice of Transfer Fee (NTF) which will become mandatory January 1, 2008. This form will require the seller to disclose that the CC&R’s, the deed or some other document affecting the transfer of the seller’s property imposes a fee to be paid upon the transfer. The form will also disclose how the fee is calculated, how much it will be,who it will be paid to, what it will be used for and whether or not it has a termination date.C.A.R. also modified some existing Standard Forms effective November 5, 2007. Most importantly the questions on the Seller’s Statutory and Contractual Disclosure form (SSD) were inserted into the optional Seller Property Questionnaire (SPQ). The SSD form will also remain as a stand alone form. Thus, those REALTORS® who opt to provide buyers with a Seller Property Questionnaire will no longer have to also provide them with an SSD. On the other hand, those REALTORS® who do not provide an SPQ to the buyer will still have to provide an SSD. The rest of the form changes were very minor: 1) the Move In Move Out Inspection form now has a space for landlord initials, 2) language was added to the Modification of Listing form (MTN) so it can be used to modify a business listing, 3) the Notice of Termination of Tenancy form now has language notifying a landlord that a longer notice period may be required if there is a rent control law or financial assistance program affecting the property, 4) the RPA-CA has added optional language to the “Other Terms and Conditions” paragraph which allows a buyer to contractually require the seller to give the buyer an SPQ, 5) the Vacant Land Purchase Agreement (VLPA) has the same modification as the purchase contract except that here the buyer can contractually require a Seller Vacant Land Questionnaire form (VLQ), 6) a paragraph was added to the Manufactured Home Purchase Agreement to permit a single loan to be secured by both a personal property manufactured home and the land on which it resides, 7) language was added to the Water Heater and Smoke Detector Statement of Compliance indicating that tankless water heaters are generally exempt from the law, and 8) the request for repairs form (RR) now has language enabling a buyer to request a credit instead of requesting that the seller perform repairs and it also enables a seller to respond to a buyers’ request for repairs with an offer of a credit.Gov then discussed some recent cases of interest. In Berryman v. Merit Property Management the Court of Appeal considered the issue of whether when a homeowners association for a common interest subdivision hires a managing agent to facilitate the transfer of interests may the agent chargea fee in excess of the actual cost to change the records. As background, Civil Code 1368 requires sellers to request from the homeowners association extensive documentation regarding the association which the association must then provide to the buyer within 10 days and the association may not impose a fee greater than its actual cost. The court held that a managing agent was not subject to this limitation and could charge whatever fee it wants.Theissue in McNairy v. C. K. Realty was whether tenants who are victims of uninhabitable rental property can sue the landlord for emotional distress. In this particular case the apartments that the tenants lived in had no hot water, discolored tap water, inoperable appliances and electrical outlets, termites, mold, cockroaches and a malfunctioning elevator. The Los Angeles County Health Department investigated and told the owner to make repairs, but the owner refused. The tenants sued for breach of the warranty of habitability and negligent and intentional infliction of emotional distress. The trial court ruled in favor of the tenants and awarded them $46,000 each in damages, with the basis for most of the damages was emotional distress. The landlord argued on appeal that the landlord should only be responsible for the tenants’ actual out of pocket damages. The Court of Appeal disagreed, and upheld the trial court’s decision, reasoning that when a tenant is living in a property that is not habitable emotional distress damages are in fact the most significant damages that they suffer. The court held that when atenant can not bathe properly, and has to worry about vermin this can result in embarrassment, anger, stress, helplessness and frustration and this is compensable.The case of Blackmore vs. Powell arose when one neighbor sold another neighbor a 6,000 square foot easement by grant dead, for “parking and garage purposes.” Twenty five years later the successor owner who owned the easement attempted to build a 660 square foot two car garage on the easement. The other neighbor interfered with this, arguing that his neighbor had no right to build a garage because a garage would give him exclusive right to that property and “exclusive use” easements are unlawful. (There is in fact case law authority holding that exclusive use prescriptive easements are unenforceable.) The plaintiff was arguing that if his neighbor were permitted to build a garage on the easement that would deny the plaintiff access to his own property, which would in effect be giving the neighbor a fee simple. The plaintiff also argued that since this was a grant of a fee simple interest it should have complied with the Subdivision Map Act twenty five years ago, and it did not, so the entire grant of the easement was invalid for that reason as well. The Court of Appeal ruled in favor of the neighbor who built the garage, holding that there is case law authority supporting exclusive use easements if they are expressly granted, as this one was. The court also noted that this particular easement explicitly stated that it was for “garage purposes” so it obviously contemplated the building of a structure. The court also found significant the fact that this particular garage only occupied a small part of the easement property and that making it non exclusive would interfere unreasonably with the easement owner’s rights. As for the subdivision map argument the court dismissed it, noting that a grant of an easement is not a division of real property into distinguishable possessary estates.Ulloa v. McMillin Real Estate was a Statute of Frauds case. Thiscase involved a land purchase where one real estate company represented both buyer and seller. At the buyer’s direction one of the agents accepted the fifth and final counter offer from the seller on behalf of the buyer. The buyer then assigned his interest to someone else (the actual buyer). Later, the seller tried to get out of the deal, arguing that there was no enforceable contract since the original buyer never signed the counter offer, the actual buyer never signed counter offer and the agent who did sign it had no power of attorney to do so. The buyer sued the seller for specific performance. The Court of Appeal held in favor of the buyer. It noted that the Statute of Frauds requires that in order for a purchase agreement for real estate to be valid it must be in writing and “subscribed by the party to be charged”. The party to be charged, accordingto the court, is the party being sued for specific performance (i.e., the party who is being sued to try to force them to perform their contractual obligations.) Here, since that party, which was the seller, did sign the contract it didnot matter that neither the buyer nor the actual buyer nor an agent with a power of attorney signed on the buyer’s side. The court noted that there is even case law authority that holds that buyers can sue for specific performance even if no one signs the contract. Gov pointed out that if the seller were suing the buyer for specific performance in this case the result would have been different.Davo v. Superior Court was a San Francisco tenant in common case. The defendants purchased rental property, evicted the tenants, then entered into tenancy in common agreements accompanied by rights to exclusive occupancy of the individual units and then sold these “subdivided units”. The evicted tenants sued, claiming that the transaction violated the subdivided lands act. The Court of Appeal disagreed, holding that these tenants did do not have the right to sue because they werenot personally injured by the violation, even if there was one. In other words, the owners of the property had the right to evict these tenants, whether or not they complied with the subdivision act, because under the Ellis Act owners of rental property, even in rent control jurisdictions, may evicted tenants if the owners are going out of the rental business. (The reason that plaintiffs who are not personally injured by a violation cannot sue defendants is because ofa recently enacted C.A.R. supported law that prohibits such lawsuits.)Gov then discussed two “landlord liability for criminal acts on the premises” cases. In Barber v. Chang a tenant brandished a gun at awoman, who was former tenant visiting her mother.. The tenant in question also threatened the woman’s boyfriend, who was also a former tenant who was not present at the time. The mother, who was a current tenant, wrote a letter to the landlord complaining about this behavior and the landlord did nothing. Subsequently, the boyfriend visited his girlfriend’s the mother and this time the threatening tenant shot the boyfriend. The boyfriend sued the landlord. The landlord’s defense was that he had no duty to protect the boyfriend because he had no reason to forsee that the tenant was going to shoot him, and he had no duty of care towards the boyfriend anyway. The Court of Appeal disagreed and held that a landlord did have a duty to undertake minimally burdensome measures to alleiviate the risks posed by a violent tenant and this duty extends to visitors as well as other tenants. The court noted that this ruling does not mean that the landlord would have had to have hired security guards, but he at least had a duty to file a police report or threaten to evict the tenant or warn the boyfriend.In Castaneda v. Olsher the defendant owned a mobilehome park. One of the tenants in the park was shot, as an innocent bystander, during a gang confrontation in the park, involving another resident who was a gang member. The resident who was shot sued the landlord, arguing that the landlord knew the other tenant was a gang member and had a duty not to rent to gang members. The California Supreme Court held that a landlord had no such duty. That is, a landlord has no duty not to rent to a tenant like this unless it is proven that violence by that tenant is highly forseeable, and according to the court simply being a member of a gang does not make it highly forseeable to that extent.In Hartzhen v. Valley Land & Title Company there was a lease agreement giving the tenant a right of first refusal to purchase the property in the event the landlord obtained a “bona fide offer to purchase from a third party” that it was willing toaccept. Subsequently, the landlord entered into an exchange with his grand children of this property for the grandchildren’s interest in other property without giving the tenant the opportunityto purchase the property. The court held that since the transaction with the grandchildren was not an “arms length sale” the right of first refusal was not violated.In Feduniak v. California Coastal Commission the California Court of Appeal held that the concept of equitable estoppel did not bar the Coastal Commission from ordering a coastal homeowner to remove a private three hole golf course from around the house and restore the area to its natural sanddune vegetation, in accordance with applicable restrictions on landscaping, even though the property had been in visible violation of permit conditions for eighteen years.The case of Salazar v. Interland, Inc. arose when the plaintiff helped brokera deal between AT&T and the defendant for the defendant to acquire AT&T’s small and medium sized business, internet and web hosting services. Through this deal the defendant acquired about 150,000 AT&T customers but then refused to pay commissions to the plaintiff. The plaintiff sued for breach of contract and fraud but the trial court ruled against the plaintiff because in the opinion of the court the transaction constituted a sale of a business opportunity, which requires a real estate broker’s license and the plaintiff did not have a broker’s license. The plaintiff argued on appeal that a sale of a “business opportunity” requires the sale of all of the assets or stock of a corporation and that since this transaction did not include all of the assets or stock it was not a sale of a business opportunity. The Court of Appeal disagreed, holding that a sale of a business opportunity also includes a transfer of the “essential assets”, of a company and this sale did encompass essential assets. In other words, to be defined as a business opportunity a transaction does not have to include the sale of every businessin which the corporation is engaged.Gov concluded his report with a brief legislative update. First, he noted that no legislation was passed this year regarding the so called “broker safe harbor”. The impetus for this legislation is that real estate brokers know that they should report to the DRE salespersons who violate the real estate law but brokers are concerned that if they turn in a bad agent the DRE will punish them for poor supervision. Therefore, brokers would like some type of legislation that indemnifies them for any related liability if they turn in an agent who violates the law. The DRE does not support this concept, however, saying that while it is actually evidence of good supervision by a broker when he/she catches a “bad” agent, when the DRE does investigate misconduct it will look at the entire context, which might means that the DRE might audit the office and if the DRE finds other misconduct during the audit it will not ignore it. Since this is DRE’s policy brokers may still be hesitant to turn in agents who violate the law because, in general, brokers probably do not want to get audited.Regarding private transfer taxes Gov noted that in addition AB 980, which he reported on earlier, another bill, SB 670, which C.A.R. sponsored and which would have prohibited private transfer fees, did not get out of committee. On the other hand, a builder sponsored bill which would have expressly legitimized these private transfer fees, with no restrictions on the amount or duration of the fees or how they can be used or how much can be charged for their administration was defeated. Gov also reported that SB 226, which would have required the DRE to promulgate regulations requiring licensees to put their DRE license numbers on their business cards and other documents was vetoed by the Governor. This bill would have also provided that an applicant who was seeking a real estate brokers license based on a four year college degree rather than two years experience as a salesperson would have had to make sure the college degree included a major or minorin real estate.As for the future, Gov reported that C.A.R. will support SB 343, which would require any writing that qualifies as a public document which is provided to the majority of the members of a local legislative body within 72 hours of an open public meeting also be made available to the public at a designated location of the local agency at the same time. Currently, the public does not have access to these reports until the meeting itself.Other issues that are being considered for possible legislation are whether a landlord should be able to evict a registered sex offender for “just cause” in a rent control jurisdiction, (C.A.R. supports this concept), what should C.A.R.’s next strategy be regarding private transfer fees, how should C.A.R. go about trying to eliminate tax on debt forgiveness after foreclosures and short sales, should the homeowner’s property tax exemption be raised, should homeowners associations be able to prohibit owners from renting out their units and how can we eliminate the requirements under federal law for sellers to put their social security numbers on the FIRPTA form.