Glen Oaks Escrow

State Cracking Down on Property Tax Writeoffs

When property owners file their tax returns with the Franchise Tax Board in April 2013, they’re in for a rude awakening.  That’s because they’ll be required to break down payments into deductible and non-deductible portions, likely reducing their itemized deductions by thousands of dollars.

But don’t go calling your representatives about which new legislation implemented this change; it has nothing to do with new taxes or laws, but rather a technology upgrade expected to be completed in 2012 at the FTB’s headquarters in Sacramento.  Until that system is up and running, the tax authority hasn’t been able to differentiate between deductible and non-deductible portions of property tax payments.  Property owners typically deduct the total amount of their property tax bill – or the 1098 amount provided by their mortgage company – leaving the state short on taxable revenue well into the billions.  For example, Mello-Roos fees in Orange County alone account for more than $200 million of non-deductible amounts expected to be written off for tax year 2011.  The updated systems will allow the deductible and non-deductible split, giving Sacramento $200 million of “found” income to collect revenue on once the computers are operational.

After a thorough review of state records turned up the shortcoming in property tax deductions, the FTB chose to hold off implementation of the new rules until early 2012, allowing taxpayers ample time to adjust annual withholdings – and to ensure tax preparers have access to the proper documentation when it’s time to filing for tax year 2012.

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“Real” Property vs. “Personal” Property

According to the ‘Lectric Law Library, Real Property is “Land and all the things that are attached to it. Anything that is not Real Property is Personal Property:  anything that isn’t nailed down, dug into or built onto the land.”  Pretty straight forward, right? Not necessarily…

Typically, all parties consider items like furniture and appliances “personal” property.  When you buy a home, you’re buying the family room, not the flat screen television or the leather sofa.  While some jurisdictions have specific interpretations of “real” vs. “personal” property, when buying and selling real estate, there can be substantial grey areas.

If you’re talking about light fixtures and drapes, one person’s real property can be another’s personal property.  Even if the chandelier in the entryway wasn’t meant to be moved once it was installed, its value – whether in dollars or in sentiment – could make a difference when it comes time to sell.  It can also lead to confusion and/or dispute between buyers and sellers.

The best way to avoid conflict is to identify items like this at the outset.  If you’re selling a home and know the appliances are staying or the drapes are going, mention it to potential buyers.  Once a purchase agreement is drawn up, be sure that any items like this are clearly identified.  Built-in bookshelves, window air conditioners, and radiators are examples of other items that could cause dispute.  The list of property items should be given to the closing agent to be included in escrow docs so it’s clear to all parties what items stay and what items go.

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Tips for buyers while house hunting

When you’re looking for a new home, it’s easy to become enamored by paint colors and new flooring.  While there’s a house out there (somewhere)
with your name on it, keep in mind that sometimes it takes a while to find the “perfect” home.  So how can you make sure you’re making the right
decision?

•   Remember the inspection.  Even though it looks like that house is “the” one, it may be hiding secrets that could turn up during inspection.
  Make sure any purchase contract allows you the right to refusal if the inspector finds something you don’t like
•   Cheap isn’t always cheaper.  From foreclosures to fixer uppers, make sure you have real-world knowledge of what it might take to bring it up to
  your standards.
•   Lifestyle choices.  Not every house will be in that “perfect” area that allows you and your family the lifestyle that you lead (or want to lead).  While that’s not necessarily a deal-breaker, ensure that you are all comfortable with what living in that neighborhood would entail.  From schools to shopping to hiking, know where those deal-breakers lie – and stick to them.
• Consider the hidden costs.  Upkeep, property taxes, HOA fees, water, trash, etc.  Know what the “real” cost of that house will be before you hit a point of no return.

In your travels, you’ll see places that will tug at your heartstrings – they’ll say “pick me.”  Follow these tips and you’ll have a better understanding of which homes are keepers, and which ones to pass on.

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Give The Gift Of A Down Payment This Holiday Season

You may still be struggling to find the “perfect” gift for that special someone.  As you consider all the options at your disposal, add one more possibility to the list:  the gift of a down payment.  With lenders now requiring down payments of 20% (or more), this option can help make a significant dent when your adult children are in the market for a new home.  It can also make a difference in the size of your estate, saving your heirs the time and expense associated with probate.

In 2011, the gift limit of $13,000 (to a single recipient per calendar year) means that a married couple could give $26,000 to each recipient without incurring a gift tax.  If combined with gifts from a second set of parents, a young couple could theoretically have more than $100,000 to put down on a house, suddenly putting a $500,000 home within their reach.  Even more exciting is when a gift is bestowed at the end of one calendar year and the beginning of the next, effectively doubling a potential down payment to nearly $250,000.

As with many financial maters, the first and most important step is to consult a tax advisor to help ensure there are no unforeseen circumstances for either party at tax time.  But this is one case where big things come in small packages!

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Ensure Your Smartphone is Protected

One of the most important items at nearly every professional’s disposal these days is a smartphone.  No longer do you have to carry around a file full of business cards or phone numbers. Gone are the days of being tethered to a PC, but if your smartphone fell into the hands of a thief or hacker, you’re extremely vulnerable. By following these tips, you can minimize your risk:

1. Password-protection.  By creating a unique code, you’re ensuring that an unauthorized user doesn’t have access to data on your phone should you misplace (temporarily or permanently) the device.
2. Application review.  Read reviews of applications before installing them.  New or unreviewed apps can be wrought with security and privacy holes.
3. Limit access.  Many apps use personal data stored on your phone (like contacts or GPS).  Make sure you know which apps are using what data and why.  Don’t allow apps access to data they don’t need, e.g. your calculator doesn’t need access to your contacts.
4. Limit Bluetooth usage.  Typically, Bluetooth passwords are short and easy to figure out.  For those situations where you can’t do without a Bluetooth device, make sure the password is robust.  The safest way to prevent someone from listening in on your conversation is to use a wired connection.
5. Regular housekeeping.  By reviewing applications on your device regularly and deleting those you don’t use, you prevent your phone unnecessary open connections to your data.
6. Screen calls and texts.  Calls and text messages sent from unknown or blocked sources can leave you exposed to potential phishing schemes.  Search the web for any unknown numbers to determine if they’re related to any documented scams.
7. Close browsers.  Some mobile sites will remain open indefinitely – even those that are password-protected.  Open pages can leave you vulnerable if you’re logged in to your bank or email.
8. Verify updates.  Never trust an “update” link sent via email or text.  Go to your device’s app store or directly to the app developer’s website for verification.  Hackers use phishing techniques like this to gain access to user passwords.

Smartphones are our lives rolled into little package, but there’s no reason they can’t be safe.  By following these tips, you can keep your most sensitive data out of the hands of unscrupulous characters.

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New Regulations Real Estate Agents and Brokers Need to Know About in 2012: Part Three

This article completes the list of the fifteen new real estate laws and regulations that you need to know about, for the sake of your business and your clients’ interests. We hope that you’ve found value in this blog post series and wish you nothing but success in the final months of 2011!

Sellers Disclosing Water-Conserving Plumbing Fixtures: C.A.R. successfully sponsored a new law, effective January 1, 2012, revising the Transfer Disclosure Statement (TDS) to include a checkbox in Section A for the seller to disclose whether the property has water-conserving plumbing fixtures.  The revised TDS also clarifies at the end of Section B that, by January 1, 2017, a single-family residence built on or before January 1, 1994 must generally be equipped with water-conserving plumbing fixtures.  If, however, that single-family home is altered or improved on or after January 1, 2014, the water-conserving plumbing fixtures must be a condition of final permit approval.  Water-conserving plumbing fixtures are low-flow toilets, shower heads, and faucets under section 1101.3 of the California Civil Code.  C.A.R. intends to release a revised TDS form in November 2011 to comply with this law.  Senate Bill 837.

NHD Companies Disclosing Mining Operations: Starting January 1, 2012, a company preparing a natural hazard disclosure (NHD) statement for a prospective buyer, as required for certain transactions, must also disclose whether the property is located within one mile of a mining operation, according to map coordinate data from the Office of Mine Reclamation.  If a property is within one mile, the NHD company must give a specified notice that such mining operations may cause inconveniences.  Senate Bill 110.

No Fee Bundling for HOA Disclosures: Beginning January 1, 2012, another C.A.R.-sponsored bill requires a homeowner’s association (HOA) to, upon written request, give an estimate of the fee for providing a prospective buyer with the governing documents of the common interest development and other required HOA disclosures.  The fee must be reasonable based upon the HOA’s actual cost for procuring, preparing, reproducing, and delivering the HOA documents.  If the fee is paid, the HOA cannot withhold the required HOA disclosures for any reason.  Moreover, the HOA cannot bundle the fee for providing required HOA disclosures with any other fees, fines, or assessments.  This law will prevent an HOA’s third-party document preparation company from bundling together both mandatory and non-mandatory HOA documents, and charging a higher fee for providing all the documents.  The HOA is also prohibited from charging any additional fees for electronic delivery of HOA documents, which must be available to a requesting party if the HOA maintains the documents electronically.  Additionally, at a buyer’s request, the HOA must provide 12 months of approved minutes of the association’s board of directors meetings (excluding executive sessions).  Delivery of the required HOA documents must be accompanied by a cover sheet itemizing the documents required by law and those provided.  In November 2011, we intend to release a revised C.A.R. standard form Homeowner Association Information Request that complies with this requirement.  Assembly Bill 771.

Brokers Designating Managers: Under another law that C.A.R. sponsored, effective July 1, 2012, an employing broker may appoint a licensee as a manager to supervise the licensed activities, clerical staff, and day-to-day operations of a branch office or division.  An appointed manager who fails to properly supervise licensed activities will be subject to disciplinary action by the California Department of Real Estate (DRE).  Appointing a manager, however, does not limit the employing broker’s supervisory responsibilities.  The appointment of a manager must be in a written agreement in which the manager accepts the delegated responsibility.  The employing broker must notify the DRE when a manager has been appointed or terminated.  A licensee cannot be an appointed manager if the licensee holds a restricted license, is or has been subject to a debarment order, or is a salesperson with less than two years of full-time real estate experience within the last five years.  Senate Bill 510.

Strengthening DRE Enforcement: Effective January 1, 2012, the DRE will have greater disciplinary authority to achieve its highest priority of protecting the public.  A licensee will be required to report to the DRE within 30 days of any of the following: (1) disciplinary action taken by another licensing entity in California or another state, or by a federal governmental agency; (2) an indictment or information charging a felony against the licensee; or (3) a conviction of a felony or misdemeanor, including a plea of guilty or no contest.  Failure to comply with this reporting requirement will be cause for discipline.  The DRE’s broader disciplinary authority will also include, among other things, the ability to automatically suspend the license of anyone incarcerated after a felony conviction.  For disciplinary actions, the DRE can conclusively presume without a hearing that a licensee’s conviction of murder, rape, lewd and lascivious acts, or a violation of dangerous drugs or controlled substances laws is substantially related to the licensee’s qualifications, functions, or duties.  The DRE will also be able to enter into a pre-prosecution settlement with a licensee or applicant instead of issuing an accusation or statement of issues, but the settlement shall be considered discipline.  Additionally, the DRE can request that a disciplinary order requires the disciplined licensee to pay reasonable investigation and prosecution costs.  Failure to pay can result in non-renewal of license.  The DRE can also require that a restricted licensee pays the costs for monitoring the licensee and monetary restitution to any person who sustained damages caused by the licensee’s misconduct.  Again, failure to pay can result in non-renewal of license.  Senate Bill 706.

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New Regulations Real Estate Agents and Brokers Need to Know About in 2012: Part Two

This week’s article marks another set of real estate laws and regulations that will be going into effect in the very near future. This group of laws pertain to the notice of sale, renting out condos, tenant smoking bans, tenants recycling rights, and the use of political signage. We hope that these explanations will assist you in gaining a handle on these news laws.

Revising the Notice of Sale: Effective April 1, 2012, a notice of trustee’s sale for the non-judicial foreclosure of one-to-four residential units must contain specified notices to the owner on how to seek postponement of the trustee’s sale, and to potential bidders on the risks involved in bidding at trustee auctions.  Additionally, a lender or authorized agent must make a good faith effort to provide up-to-date information about sale dates and postponements to persons who want this information.  The lender must also provide updated information through the Internet, a telephone recording, or any other means that allows free access at any time.  Senate Bill 4.

Renting Out Condominiums: C.A.R. also successfully sponsored legislation protecting owners’ right to rent out their units in common interest developments.  Starting January 1, 2012, an owner in a common interest development is exempt from any prohibition in a governing document against renting or leasing the unit, unless that prohibition was in effect before the owner acquired title to his or her unit.  When renting out a unit, the owner must give the HOA verification of the owner’s acquisition date, and name and contact information of the prospective tenant.  An owner’s right to rent under this law does not terminate for certain transfers of title, including, but not limited to, probate, spousal, parent-to-child, adding a joint tenant, and other transfers exempt from property tax reassessment.  For sales transactions, the required HOA disclosures must include a statement describing any prohibition in the governing documents against renting or leasing.  This law does not apply to rental prohibitions in effect before 2012.  Senate Bill 150.

Tenants Smoking Ban: Beginning January 1, 2012, a residential landlord can prohibit the smoking of cigarettes and other tobacco products on the property, including any dwelling unit, building, other interior or exterior area, or the premises on which the property is located.  For new tenants on or after January 1, 2012, the areas where smoking is prohibited must be stated in the lease or rental agreement.  For preexisting tenants before 2012, a new provision prohibiting smoking is a change in the terms of tenancy that requires adequate written notice, depending on whether the tenancy is month-to-month or for a fixed term.  Senate Bill 332.

Tenants Displaying Political Signs: Effective January 1, 2012, a residential tenant can generally display political signs related to elections, legislative votes, initiatives, and other political matters as specified, but the landlord can make reasonable restrictions as to location, size, and duration of display.  In a single-family dwelling, a tenant’s political signs can be displayed from the yard, window, door, balcony, or outside wall of the leased premises.  In a multifamily dwelling, a tenant’s political signs can be posted in the window or door of the leased premises.  A landlord can restrict the size of a political sign to six square feet.  A landlord can also prohibit a tenant from displaying political signs that violate local, state or federal law, or a lawful provision in an HOA’s governing documents.  A tenant must remove political signs in compliance with time limits set by local ordinance, or absent such time limits, the landlord can reasonably restrict the posting of a sign to 90 days before an election or vote, and its removal within 15 days after the election or vote.  Senate Bill 337.

Tenants Recycling Rights: Commencing July 1, 2012, a multifamily residential dwelling of five or more units (or a multifamily residential dwelling or business that generates more than four cubic yards per week of commercial solid waste as defined) must arrange for recycling services.  The intent of this law is to address the challenges local governments are facing in reducing solid waste disposal in multifamily properties.  The required recycling services are to be consistent with state or local laws, to the extent that these services are offered and reasonably available from a local service provider.  The property owner of a multifamily residential dwelling may require tenants to source separate their recyclable materials to aid in compliance with this law.  Assembly Bill 341.

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New Regulations Real Estate Agents and Brokers Need to Know About in 2012: Part One

Each year new laws and regulations come about as the year comes to a close. These new regulations and updates to existing laws not only affect real estate agents and brokers, but also their clients. To help you navigate through these new laws, we will be posting them over the next several weeks.

1. DRE Issuing Citations and Fines: Starting January 1, 2012, the DRE can issue a citation and fine up to $2,500 if, upon investigation, it has cause to believe that a licensee has violated the DRE rules, or a unlicensed person has engaged in licensed activities.  The person cited can request a hearing within 30 days from receipt of the citation.  The citation and fine will be in lieu of DRE disciplinary action for the offense cited, and the citation will not be reported as discipline.  However, failure to comply with the terms of the citation or pay the fine within a reasonable time specified by the DRE shall result in disciplinary action and non-renewal of license.  The DRE may also apply to a superior court for a judgment in the amount of the fine and an order compelling compliance.  All administrative fines collected will be deposited into the Real Estate Recovery Fund, which has, under Senate Bill 706, been renamed the Consumer Recovery Account.  Additionally under this law, if the DRE delays the renewal of a license due to a pending disciplinary action, the license will not expire until the results of the disciplinary action are final or the license is voluntarily surrendered, whichever occurs first.  This law also gives the DRE the authority to make public information confirming the fact of certain investigations or proceedings regarding a licensee, and to apply for a court order to enforce a subpoena if a licensee has refused to obey.  Senate Bill 53. Read Full Text

2. Reporting Broker-Owned Escrows and Securities Qualification Exemptions: Starting July 1, 2012, a broker who conducts escrow activities for five or more transactions in a calendar year under the broker exemption from the Escrow Law, or whose escrow activities are $1 million or more in a calendar year, must file with the DRE an annual report of the number of escrows and dollar volume.  The report must be filed within 60 days after the end of a calendar year in which the threshold is met.  A failure to submit the report will be penalized at $50 per day for the first 30 days and $100 per day thereafter, up to $10,000.  A broker who fails to pay the penalty may be subject to license suspension or revocation.  All penalties collected will be deposited into the Consumer Recovery Account under the Real Estate Recovery Program.  Effective January 1, 2012, this law also requires a broker who files certain information with the DRE for an exemption from securities qualification to submit a copy of that information to any investor who gives funds to the broker in connection with a transaction involving the sale of a series of notes (or undivided interests in a note) secured by real property under section 10237 of the California Business and Professions Code.  Senate Bill 53. Read Full Text

3. DRE Suspending Largest Tax Delinquents: Commencing January 1, 2012, both the State Board of Equalization and the Franchise Tax Board must periodically make public a list of the 500 persons with the largest tax delinquencies in excess of $100,000.  The lists must include, among other things, each taxpayer’s occupational or professional license numbers.  The DRE and other state governmental licensing entities (with certain exceptions) must suspend and refuse to issue or renew an occupational or professional license for anyone on either tax delinquency list.  Assembly Bill 1424. Read Full Text

4. Agents Handling Appraisal Issues: Beginning January 1, 2012, a licensee cannot knowingly or intentionally misrepresent the value of real property.  Furthermore, a licensee who offers or provides an opinion of value of residential real property that is used as the basis for originating a mortgage loan cannot have any direct or indirect interest in the property or transaction as defined under Regulation Z (at 12 C.F.R. section 226.42(d)).  A licensee or other interested party is also prohibited from using coercion, extortion, bribery, intimidation, compensation, or instruction to improperly influence a person preparing an appraisal or valuation for a real estate transaction.  Senate Bill 6. Read Full Text

5. Increasing Small Claims to $10,000: Commencing January 1, 2012, the small claims court jurisdiction will generally increase from $7,500 to $10,000 for an action brought by a natural person.  For a claim of bodily injury from a car accident, the increase to $10,000 will not occur until 2015.  The dollar limit in small claims court for an action brought by a corporation or other entity will remain at $5,000.  Senate Bill 221. Read Full Text

*Information provided by the CALIFORNIA ASSOCIATION OF REALTORS.

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Rental Homes Becoming More Popular In Recent Months

A recent survey found that, over the last decade, the number of homes occupied by renters has gone up nearly 34%.  Good news for landlords – great news for those looking for a long-term investment (10 years or more)  and who have ever thought about becoming a landlord.

The good news doesn’t stop there.  In 2010, average rental rates jumped a whopping 12% year-over-year.  This trend doesn’t show any sign of leveling off as demand continues to rise and vacancies remain at record lows as more renters flood the market searching for rentals.

For owners of multiple properties or empty-nesters looking to downsize, the opportunity couldn’t be clearer.  Mortgage rates remain at historic lows, making this one of the best times for prospective real estate investors to enter the market – as a landlord. 

When seeking out an investment property, experts advise sticking close to home.  Investors are also cautioned to avoid properties with more than four units due to steep borrowing standards.  Look for a property where the rental income will provide a 20% cushion.  That will help cover repairs, the cost of property management, and potential vacancy between tenants.

A rental property can be an excellent addition to your long-term investment portfolio.  With a little research and attention, it can also provide owners with an additional source of income while remaining low-risk.

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Energy Efficient Homes Pay Off

More and more, energy-efficiency ratings are becoming a selling point in residential real estate listings.  Whether it’s an Energy Star or LEED (Leadership in Energy and Environmental Design) certification, a recent survey conducted by The Earth Advantage Institute, a non-profit group in Portland, OR, suggests that such certifications pay off.  According to EAI’s research, new homes certified for sustainability and energy efficiency fetch 8% more, on average, than their non-certified counterparts.  And existing construction with the same certification can see a premium of about 30%.

Banks and appraisers are beginning to catch on to these trends, enacting new training programs that teach their officers to recognize the benefits of energy efficient designs and distill them into their lending and appraisal practices.  For example, a borrower’s potential for lower monthly costs for heating and electricity in an energy-efficient home could translate into better credit-worthiness and less risk for the underwriting bank.

Overall value isn’t the only the only place that energy efficiency pays.  A review of listings in the Portland market showed that energy-efficient homes were on the market for 18 days less than comparable non-certified properties.

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