Real estate agents will work in a slightly different environment in 2014 as new laws come into effect involving disclosures, short sales, adjoining owners and employment.
The Greater San Diego Association of Realtors discussed the new laws at a seminar this past week.
Gov. Jerry Brown signed about 800 laws last year, and about 130 are related to real estate.
Gov Hutchinson, assistant general counsel and staff vice president of the California Association of Realtors (CAR), presented the top 20 significant new laws.
The Internal Revenue Service and California Franchise Tax Board decided that distressed home sellers are not liable for federal or state income tax on short sales, according to CAR.
Previously, when a homeowner decided to short-sell a home that’s worth $350,000 and has a $400,000 loan, the difference can be taxed as income, Hutchinson said.
There have been state and federal laws forgiving that debt, but those laws expired.
In November, the IRS recognized that debt written off in a short sale does not constitute recourse debt under California law, according to CAR.
The California Franchise Tax Board followed suit in December, Hutchinson said, and short sellers no longer have to worry about debt forgiveness laws being extended.
“It’s a permanent thing now,” Hutchinson said. “If you close a short sale on a real estate one to four, there’s no federal or state tax responsibility.”
However, there is still a tax consequence for loan modifications resulting in forgiveness of principal, Hutchinson said.
Short sales of land or properties with five units or more also still have a tax consequence, unless it’s in bankruptcy or insolvent.
In addition, Senate Bill 426 made it illegal for collection agencies to even try to collect the debt, Hutchinson said.
Hutchinson reviewed a revision of the real estate transfer disclosure statement, which he said will be expanded July 1 to inquire whether there are any pre-litigation claims involving the property.
Effective Jan. 1, the Bureau of Real Estate can revoke or suspend the license of any real estate professional if he or she knowingly tamper, mutilates or conceals records.
Hutchinson said this law is a “classic case” of “I thought this was already a law.”
The California Bureau of Real Estate (CalBRE) now has the authority to cite and regulate unlicensed people who are engaging in prepaid rental listing services.
Any 1031 exchange occurring after Jan. 1 in which the taxpayer acquires a “like-kind” property outside California has to file an information return every year thereafter with the FTB to keep track of the property. When the owner sells the property, he or she will owe a tax.
An 1872 law has been repealed, Hutchinson said. Neighbors whose properties are separated by a fence or wall on the boundary line are now equally responsible for maintaining the boundary.
Smoke detectors will need non-replaceable, non-removable batteries capable of powering the smoke alarm for 10 years starting July 1.
Hutchinson said real estate employers should also be aware of the increase in state minimum wage to $9 effective July 1, and to $10 effective Jan. 1, 2016.
Jordan Marks, director of government affairs at SDAR, outlined new laws in San Diego County for 2014.
Mortgage holders need to register a property once it’s gone into foreclosure. It must be filed within 10 days of a notice of default and must be renewed by each Jan. 31.
The city of Coronado has a new ordinance that signs can’t be illuminated, must be located on the premise for sale, must be removed within 15 days of escrow and may not be placed on public rights of way.
Marks also mentioned the linkage fee, but said he doesn’t expect it to take effect because enough signatures were collected to put the issue to a public vote.
Charles Dawson, associate policy representative at the National Association of Realtors, Skyped into the meeting from Washington, D.C., to discuss an overview of how the implementation of Dodd Frank might affect Realtors.
The Qualified Mortgage Rule will have the “most day-to-day impact on your business,” Dawson said.
A loan meets the qualified mortgage requirements if the borrower has a 43 percent debt-to-income ratio or less — meaning that the borrower’s total debt expense does not exceed 43 percent of his or her gross income.
The rule was designed to encourage lenders to make loans that the consumer has the ability to repay, Dawson said.
As a result, the loan will have to be fully documented with information on income and assets to ensure the borrower is able to repay the loan.
A mortgage can be originated whether or not it’s a QM, as long as it is determined that the consumer is able to repay the loan, based on common underwriting factors.
The QM is considered a “consumer protection rule,” and the risk retention qualified residential mortgage (QRM) can be considered an “investor protection rule,” Dawson said.
If an investor pools the mortgages and sells them, he or she has to retain 5 percent of the risk in that pool of mortgages.
“Basically, it’s protecting investors from broker-dealers selling mortgage-backed securities without having interest in the quality of those securities,” Dawson said.
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