Articles Posted in Real Estate

If you are a real estate agent working as an independent contractor for a Sacramento real estate brokerage, you may be generally aware of the advantages of forming a solely owned corporation for your real estate salesBusinessFormation-1-300x230 business. Perhaps your CPA even recommended that you organize your real estate sales business as an S corporation to take advantage of favorable tax treatment. While a CPA is in the best position to advise you on your specific tax matters, you can trust a California business formation lawyer to explain why it’s important for real estate agents to consider business formation.

Payment of Commissions

As a real estate agent licensed by California Bureau of Real Estate (BRE), you are probably aware that it is unlawful to provide real estate-related commissions to an unlicensed person or entity under the California Business and Professions Code. Your first concern with forming a corporation may be that you will run afoul of this prohibition, since your entity is not recognized by BRE and  you hold your license as an individual.  Lawmakers anticipated this conundrum and resolved it, so that you can instruct your broker to pay your commission to a third party – such as your corporation.

DO

  • Fully, completely and truthfully complete the Transfer Disclosure Statement (“TDS”) and the Seller Property Questionnaire (“SPQ”).  As a general rule, all sellers of residential real estate property containing one to four dwelling units must complete and provide writteReal-estate-seller-disclosuren disclosures to the Buyer. There are a few exceptions, such as properties that are transferred by court order or from one co-owner to another. But if the Seller is offering their home to the public for sale, count on this requirement applying. (California Civil Code Sections 1102, 1102.2, 1102.3)  The benefit to you as the Seller is that by thoroughly disclosing more information to the Buyer, it becomes more difficult for the Buyer to later complain that you withheld material information about the property.
  • Review the TDS and SPQ to ensure that each question is completely answered. Review the TDS and SPQ with a critical eye of the average buyer.  Make sure that you checked either “yes” or “no” to each question and provided explanations for each item checked “yes.”  Providing the Buyer with an incomplete TDS or SPQ can create a new right for the Buyer to cancel when you provide more information in response to a Buyer’s follow-up questions do to an incomplete response.

Purchasing commercial real estate for a start-up business is one of the most exciting steps an entrepreneur takes toward achieving his or her goals. While this stage of the process can certainly be a rush of emotion, it is critical that buyers consider potential roadblocks. One of the most critical components to buying real estate, and especially commercial real estate, is ensuring that the property does not have an environmental claim. It is important for buyers to understand what environmental claims are and how they impact the value of a property.

What are Environmental Claims?

There is a broad scope of potential environmental claims that can range in severity. It is important for people to realize that although a building may appear to be in good condition, environmental impacts may not be readily visible and could have occurred many years ago. In fact, sellers may not even be aware that their building is in violation of environmental laws. Some of the most common environmental claims buyers encounter are:

A provision commonly utilized in commercial real estate contracts is a liquidated damages clause. This clause is utilized as an incentive so all parties involved in the transaction perform as stipulated under the contract. If they fail to do so, the harmed party can pursue restitution through the liquidated damages clause.

You must be careful when drafting the language of the clause because in California a liquidated damages provision is presumed to be enforceable, but could be voided if it is viewed as a penalty by a court.

In the 1970s, California adopted a policy of presumptive validity for liquidated damages clauses in commercial contracts, including real estate contracts. This means that a clause in a contract liquidating damages for a breach is valid unless the party challenging the provision can show that the provision was unreasonable under the circumstances when the contract was formed, or is so draconian that it is essentially a penalty.

Who says the economy is stagnant? California’s commercial construction industry shows the highest level of activity since 2001, and further growth is expected over the next three years, according to an article published in L.A. Biz.

This promising news originated in a study conducted by Allen Matkins, a California law firm, and UCLA’s Anderson School of Management. The study examined seven of California’s major markets for indicators of future commercial construction. More easily accessible financing and low cap rates, along with increased demand from technology, advertising, media and information companies has helped spur the commercial construction growth.

With Commercial Construction Growth Comes Increased Risk of Litigation

You decide to rent your condo in Sacramento. You think you found the perfect tenant. However, after three months, your tenant stops sending you the rent. They are in breach of the lease. What do you do?

This unfortunate scenario occurs quite often and is one of the risks associated with renting property as a landlord. What do you do when your tenant violates the express terms of the lease? If the tenant fails to pay you the rent, you are looking not only at a loss of income, but the additional expense of taking legal action.

Your decision of whether to sue your tenant to recover the lost rent (or the cost of repair if the tenant damaged your rental property) may depend on whether you can recover costs and attorney’s fees. So, you are probably asking, “What is the applicable law for recovery of attorney’s fees in California?”

Even when a project benefits the public, there are interest groups that will work tirelessly to stifle progress and business development. Unfortunately, the California Court of Appeal for the First District sided with such an interest group when the court held that an exchange agreement initiated by the California State Lands Commission regarding the 8 Washington Street development project in San Francisco was not statutorily exempt from the California Environmental Quality Act (“CEQA”).

Background on the Decision

The case, Defend Our Waterfront v. California State Lands Commission (Sept. 17, 2015) Cal.App.4th, Case Nos. A141696 & A141697, involves the 8 Washington Street project, which is a proposed mixed use development along the San Francisco waterfront near the San Francisco Ferry Building, according to JD Supra. The proposed development site includes a parcel known as Seawall Lot 351 consisting of filled tidelands managed by the City of San Francisco through the Port of San Francisco.

When you make a quid pro quo deal and you are in the real estate business, watch out. You may be violating the Real Estate Settlement Procedures Act (RESPA).

The Ninth Circuit Court of Appeals decided that a title insurer’s “equity investments” in title agencies in exchange for agreements that the agencies would refer customers to the insurer violated the anti-kickback provisions of the RESPA, according to an article published on Lexology.

The case, Edwards v. First Am. Corp., 2015 WL 4999329 (9th Cir. Aug. 24, 2015) featured borrowers who filed a putative class-action lawsuit against the title insurer alleging that the company violated Section eight of RESPA. This section prohibits payments for the referral of settlement service business.

Entering into a consent order with the Consumer Financial Protection Bureau (CFPB) will not shield you from class action litigation. Castle & Cooke Mortgage, LLC, the mortgage company that entered into a consent order with the CFPB in November 2013 learned that the hard way.

A federal judge in California rejected Castle & Cooke’s motion to dismiss a class action lawsuit regarding alleged violations by the mortgage company of the Regulation Z loan originator compensation rule.

What is the Regulation Z Loan Originator Rule?

The Consumer Financial Protection Bureau (CFPB) issued a final rule postponing the effective date for all provisions of the TILA-RESPA Final Rule and Amendments to October 3, 2015. “TILA” stands for Truth in Lending Act and “RESPA” stands for Real Estate Settlement Procedures Act. This new regulation promulgated by the CFPB is often described as the “Know Before You Owe” mortgage disclosure rule, also known as TRID (an amalgam of TILA and RESPA). TRID is aimed toward making mortgages more transparent and easier to understand for consumers, but there will definitely be a learning curve for consumers and professionals in the real estate industry.

In addition to notifying the industry of the delay in the full effect date, the CFPB made two technical changes to the TILA-RESPA Final Rule that were not in the proposed rule. Specifically, the final rule amends § 1026.38(i)(8)(ii) and (iii)(A) to include, in the amount disclosed as “Final” for Adjustments and Other Credits, the amount disclosed under § 1026.38(j)(1)(iii) for certain personal property sales in order to conform the calculation of Adjustments and Other Credits on the Closing Disclosure and Loan Estimate, according to an article published by Marc Patterson on JDSupra. The final rule also attempts to conform the disclosure of a borrower’s cash to close by amending § 1026.38(j)(1)(iv) to include, in the amount disclosed as Closing Costs Paid at Closing, lender credits disclosed under § 1026.38(h)(3).

Richard Cordray, Director of the CFPB, stated that the additional time provided by the new October 3, 2015 effective date will help consumers and providers whose families are likely busy with the transition to the new school year. Director Cordray also stated that the CFPB did not want to unduly burden creditors who had limited time to fully test all of their systems and system components to ensure that each system works with the others in an effective manner due to some technical errors discovered by the CFPB.

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