legal update. legal update learning objectives after study of this module you will be able to:...
TRANSCRIPT
Legal Update
Legal Update Learning Objectives
After study of this module you will be able to:
1. Identify current federal legislation affecting the real estate business.
2. Identify Virginia Assembly legislative updates.
3. Recognize recent changes to VREB Rules & Regulations.
Federal Legislative Update
Lead-Based Paint Disclosure
1Under direction of the Residential Lead-Based Paint Hazard Reduction Act of 1992, HUD and EPA require disclosure of all available information on lead-based paint and lead-based paint hazards for the sale or lease of properties built prior to 1978.
Federal Legislative Update
Lead-Based Paint Disclosure2
Effective December 1996, all purchasers and lessees of property built before 1978 must be given the pamphlet Protect Your Family from Lead in Your Home, and sign the appropriate “Purchase” or “Lease” disclosure forms, which should have been previously signed by the seller or landlord.
Federal Legislative Update
Lead-Based Paint Disclosure
3
Purchasers have the right to a 10-day inspection or risk assessment period. Although the seller is not required to remove lead-based paint, the purchaser may withdraw from the contract in the event lead-based paint is found. Purchasers and sellers may negotiate possible methods of reducing lead-based paint hazards.
Federal Legislative Update
Lead-Based Paint Disclosure4
The real estate agent is responsible for insuring that
• sellers and landlords are aware of their obligations• sellers and landlords make the proper disclosures • sellers give purchasers an opportunity for an
inspection• lease and sales contracts contain appropriate
language
Federal Legislative Update
Lead-Based Paint Disclosure
5
EPA and HUD have recently begun inspecting broker files to verify that all appropriate disclosure forms are included
in the pertinent company files.
Federal Legislative Update
Health Care Deduction for Self-employed
• Current legislation allows a 100% deduction of allowable health-care expenditures
• Under prior regulations, self-employed persons could deduct 45% of their health care insurance in 1998, 60% in 1999, 70% in
2002, and 100% in 2003.
Federal Legislative Update
RESPA Rules and Regulations
The rules and regulations of The Real Estate Settlement Procedures Act have been under study for a number of years. The most current concern has been over the “one-stop” shopping concept, wherein a real estate brokerage company also has affiliated companies for mortgage loans, title insurance, hazard insurance, escrow and settlement services, and/or other related services.
RESPA seeks to insure that brokerage companies are not receiving kickbacks for services not performed. After a survey of the public showed that “one stop” shopping is perceived favorably by the consumers, the regulations are under continuing review.
Federal Legislative Update
Tax Relief Act of 1997
1• The tax benefit for the sale of a personal residence
was greatly enhanced with an exemption from capital gains tax on profit up to $500,000 for a married couple and $250,000 for a single person.
• The former one-time exclusion of $125,000 for persons 55 years of age or older no longer applies.
• The new exemption applies to all properties used as a primary residence for two years.
Federal Legislative Update
Tax Relief Act of 1997 2
• The two years may be an aggregate of any two of the previous five! [Actual time required is a total of 730 days!]
• It does not matter if the property formerly was used as a rental property, as long as the two-year residence requirement is met.
• The exemption may be taken once every two years, and there are no “buy-up” requirements.
• Special provisions have been made for widows and widowers or for others needing to sell due to extreme extenuating circumstances.
• The new law affects all properties sold after May 7, 1997.
Federal Legislative Update
Other Tax Matters
The maximum capital gains tax rate on the sale of investment property was reduced from 28% to 20%.
For someone in the 15% bracket the reduction went from 15% to 10%.
The depreciation recapture rate will be 25% for property held for a minimum of twelve months, although investment property is usually depreciated over several years.
Proposed legislation might further reduce the depreciation recapture rate to 20%
Federal Legislative Update
Private Mortgage Insurance1
Legislation effective July 29, 1999, mandated that for all new loans private mortgage insurance must be droppedwhen an equity position of 22% (Loan-to-Value of 78%) hasbeen reached. The 22% equity position is derived from theoriginal value of the property and does not allow for anyappreciation (or depreciation) of the value. The borrowermay request an elimination of the PMI with an equityposition of 20%. (This might require an appraisal.)
Federal Legislative Update
Private Mortgage Insurance2
Fannie Mae and Freddie Mac have agreed to dropPMI on all loans originated even before July 1999,• if the properties have reached the 22% equity
position, or• the “half-life” of the term of the loan has
arrived,• the borrower is in good standing on the loan, and• the borrower has not signed a previous agreement
with regard to elimination of PMI.
Federal Legislative Update
Private Mortgage Insurance
3
FHA and VA loans are not affected by the
new legislation.
Federal Legislative Update
Home Office Deduction
Under 1999 regulations, persons who performadministrative and ministerial tasks in their home office,but perform actual services that generate income outsidethe home office, are eligible for a home officededuction on their income tax. The prevailing taxrequirements for claiming part of a residence for a business must be followed.
Federal Legislative Update
Effective October 1, 2000, for electronic transactions andMarch 1, 2001, for electronic records.
Electronic Signatures – (H.R. 1714, S. 761, P.L. 106229) This law simplifies the real estate transaction byallowing two parties to treat electronic signatures withthe same legal standing as “pen and ink” versions. TheElectronic Signatures Law allows consumers andbusinesses to do all of the following procedures:
Federal Legislative Update• Contract electronically for the purchase of goods and services • Contract electronically for sale and lease of real estate
• Process mortgage loan transactions electronically
• Receive related state and federal disclosures online
• Transfer promissory notes electronically
• Notarize transactions electronically
• Obtain and maintain electronic records of transactions.
General Assembly Update
Information provided by Virginia Association ofREALTORS®. For more detail seewww.varealtor.com/MembersOnly/Legislative Information. Abbreviations used: • House Bill (HB)• Senate Bill (SB) • Property Owner Association (POA)
General Assembly Update
Licensee’s Ability to Prepare BPO’s/CMA’s
On a Fee for Service Basis
HB 2334 establishes that real estate licensees may
provide evaluations of property (as in a Broker Price
Opinion or Comparative Market Analysis) and charge
a fee for this service. The evaluation may not be
referred to as an appraisal under any circumstances.
General Assembly Update
Property Management
(Landlord Tenant Act) Changes
1
HB 2276, SB 132 require that rent be placed
in a court escrow account in a case where a
tenant has requested a continuance or in the event of a
contested trial date where the case involves an
unlawful detainer action.
General Assembly Update
Property Management
(Landlord Tenant Act) Changes
2
HB 2302 provides that tenants must not remove
or tamper with a properly working smoke
detector.
General Assembly Update
Property Management
(Landlord Tenant Act) Changes
3HB 2537, SB 1173 provide that a guest or invitee
of a tenant may be barred from the premises for
conduct violating the terms of the rental agreement,
local ordinance, or state or federal law.
General Assembly Update
Property Management
(Landlord Tenant Act) Changes
4
HB 1862 authorizes localities to establish
procedures permitting property owners to
designate the local law-enforcement
authority to enforce trespass violations.
General Assembly Update
Property Management
(Landlord Tenant Act) Changes
5
SB 933 requires that security deposits accrue
interest at an annual rate equal to one percent
below the Federal Reserve Discount rate as of
January 1 of each year
General Assembly Update
Property Owner’s Association and
Condominium Act Changes
1
HB 1369 requires posting of signs at least 48
hours before pesticides are applied to common
areas.
General Assembly Update
Property Owners’ Association and
Condominium Act Changes
2
HB 1595 provides that meetings shall be held at
least once a year in accordance with the bylaws
of the association.
General Assembly Update
Property Owners’ Association and
Condominium Act Changes
3
HB 1632 requires that requests for records be
made for a purpose related to the owner’s
membership and clarifies the types of documents
to which an association may deny access.
General Assembly Update
Property Owners’ Association and
Condominium Act Changes
4
SB 999 provides that a declaration may be
amended by agreement of two-thirds of the
owners of lots affected by the declaration.
General Assembly Update
Property Owners’ Association and
Condominium Act Changes
5
HB 2063 increases maximum charge to be
assessed to a member of the association for a
single offense or violation of the association’s
rules from $50 to $100.
General Assembly Update
Property Owners’ Association and
Condominium Act Changes
6HB 2534 conforms Condo Act and Real Estate Time
Share Act regarding conveyance of time-share interest
in condominium that is not completed: developer must
post completion bond for 100% of cost for completion
and disclose status of uncompleted unit to purchaser.
General Assembly Update
Property Owners’ Association andCondominium Act Changes
7SB 1090 provides than when a contract iscancelled based on a seller failing to providecontract disclosures, or based on a purchaser’sright to cancellation, a deposit is to be returnedwithin 30 days.
General Assembly Update
Property Owner’s Association and
Condominium Act Changes
8
SB 1138 provides that members of the
association that have requested notice must
be provided with time, date and place of all
regular and special meetings.
General Assembly Update
Property Owner’s Association andCondominium Act Changes
9HB 2505 exempts persons engaged in propertymanagement from liability if a worker is injured whileengaged in the maintenance or repair of real propertymanaged by that person, as long as the propertymanager is not engaged in the same business as the injured worker and does not profit from the services ofthe injured worker.
General Assembly Update
Property Owner’s Association andCondominium Act Changes
10HB 2699 requires unit owners to disclose to purchaser all of the
following: • The unit is subject to Condominium Act • The seller must provide resale certificate • The purchaser has the right to cancel within 3 days of
receipt of resale certificate• The right to receive resale certificate and to cancel are
waived conclusively if not exercised prior to settlement (Conforms Condo Act to POA Act)
General Assembly Update
Real estate Closing and Settlements(CRESPA)
1SB 1278 establishes the Real Estate SettlementAgent Registration Act, which governsqualifications and financial responsibility forpersons conducting settlements not previouslycovered by Consumer Real Estate SettlementProtection Act (CRESPA). All lay settlement agentsmust comply with CRESPA requirements.
General Assembly Update
Real estate Closing and Settlements
(CRESPA)
2HB 2600 requires any person making referral to an
affiliate settlement service provider to disclose in
accordance with federal RESPA regulations and
requires disclosure of ownership of even less than 1%
(currently exempt under RESPA).
General Assembly Update
Occupational Regulation
1
HB 1861 increases the penalty for any board
violation from $1000 to $2500.
General Assembly Update
Occupational Regulation
2
HB 2503, SB 1330 authorizes a business
entity salesperson where a single licensee is
an owner or officer to be granted a license in a
fictitious name.
General Assembly Update
Occupational Regulation
3
HB 2517 requires licensed and certified
residential appraisers to authenticate all written
appraisal reports by signature, license
designation and license number only. No seal
is required.
General Assembly Update
Occupational Regulation
4
HB 2246 increases the Real Estate Appraiser
Board from four to six licensed appraisers, and
decreases to one mortgage lender, and from three
to two citizens. Current members will not be
affected.
General Assembly Update
Spot Blight Abatement Legislation
1
HB 2577 creates a fund to make loans to
localities for acquisition, demolition, removal,
rehabilitation or repair of derelict structures
causing blight in the community.
General Assembly Update
Spot Blight Abatement Legislation
2
HB 1962 allows localities to impose a $25
annual registration fee on owners of vacant
buildings with a $250 fine for failure to register.
General Assembly Update
Spot Blight Abatement Legislation
3
HB 2026, HB 2639, SB 1242 make the spot
blight abatement law applicable statewide.
General Assembly Update
Spot Blight Abatement Legislation
4
HB 2630 allows localities to waive liens
associated with weed or trash removal, property
repair or demolition to facilitate sale of the
property with such lien becoming a personal
responsibility of the current owner.
General Assembly Update
Spot Blight Abatement Legislation5
HB 2211 allows localities to streamline the taxdelinquent sale process for properties assessed at$20,000 or less in cases where • tax is delinquent for three years: land is declared
nuisance, notice has been given, liens placed on property have not been paid, or
• tax is delinquent for seven years.
General Assembly Update
Megan’s Law Disclosure1
HB 1204 added a disclosure to the Virginia ResidentialProperty Disclosure/Disclaimer Form informing buyersthat it is their responsibility to exercise whatever duediligence they feel is necessary to collect informationregarding released sex offenders. That information isavailable on the internet at
www.vsp.state.va.us/vsp.html
General Assembly Update
Megan’s Law Disclosure2
HB 570 specifies that information regardingreleased sex offenders shall be made public on theInternet and is to include name, address, pictureand criminal record. The public may also requestinformation from their local law enforcement office.Schools, day care centers and child service groupswill be notified through a proactive notice system.
General Assembly Update
CRESPA Bills
SB 281 and HB 1265 clarified that real estate
licensees performing ministerial acts (such as
ordering a termite inspection) do not have to
register under the Consumer Real Estate
Settlement Protection Act.
General Assembly Update
Commercial Broker’s Lien Change
HB 1242 ensures that purchasers of a
commercial building with actual knowledge of
brokerage fees due to a broker will be liable for
payment regardless of whether the broker has
filed a lien.
General Assembly Update
Virginia Industrial Development Authority
Act Change
HB 1405 explicitly gives Industrial
Development Authorities the authority to pay
commissions to real estate brokers, including
buyer agents.
General Assembly Update
Calculation of Interest on Security Deposits
HB 1355 changes the law regarding
calculation of interest on security deposits
from six-month increments to an annual rate
equal to the Federal Reserve Discount rate
as of January 1 of each year.
General Assembly Update
Disposal of Abandoned Property
HB 1247 allows a landlord to dispose of
abandoned property provided the landlord has
given the tenant 10 days notice.
Virginia Real Estate Board Regulations
Changes and Updates to Regulations
• Summary of changes effective April 2003
• Increase in continuing education hours from 8 to 16 forlicensees renewing after July 1, 2004
• New 30-hour education requirement for all new licensees who receive their initial license after January 1, 2004
(Handouts Available Upon request)
Virginia Real Estate Board Rules and Regulations Effective 01/01/99 and 04/01/03
Summary
A. Significant changes1. The numbering system has been changed to comply with
the requirements of the Virginia Administrative Code (VAC).
2. The definition of “actively engaged” has been changed from an average of 20 to 40 hours per week. (18 VAC 135-20-10)
3. Requirements for obtaining a salesperson’s or associate broker’s license as a business entity have been added. (18 VAC 135-20-45)
4. Requires applicants for licensor by reciprocity to take and pass the Virginia portion of the licensing examination. (18 VAC 135-20-60)
Virginia Real Estate Board Rules and Regulations Effective 01/01/99 and 04/01/03
Summary
5. Requires a roster of every salesperson and broker assigned to a branch office to be posted in that office (18 VAC 135-20-160)
6. Requires deposit of escrow funds by the end of the fifth business banking day following ratification (sale) or receipt (lease), unless otherwise agreed to in writing. (18 VAC 135-20-180)
7. Advertising requirements have changed to add the internet to the definition of advertising. (18 VAC 135-20-190)
Virginia Real Estate Board Rules and Regulations Effective 01/01/99 and 04/01/03
Summary
8. Disclosure of interest requirements were changed to incorporate agency law. (18 VAC 135-20-210)
9. Record keeping provisions changed to require that a copy of each disclosure of a brokerage relationship, each executed contract, agreement and closing statement related to the real estate transaction in the broker’s control or possession be retained for three years. (18 VAC 135-20-320)
Virginia Real Estate Board Rules and Regulations Effective 01/01/99 and 04/01/03
Summary
10. Effective 07/01/04, 16 hours of Continuing Education must be completed for license renewal. You must have 8 hours in the mandatory topics which includes: 2 hours in Fair Housing and the remaining 6 hours must be a minimum of 1 hour in each of the following categories: Legal Updates, Real Estate Agency, Real Estate Contracts, and Ethics & Standards of Conduct. The remaining hours may be real estate related or in the specific categories.
Virginia Real Estate Board Rules and Regulations Effective 01/01/99 and 04/01/03
Summary
11. If you received a new salesperson license (active or inactive) after December 31, 2003, and this is your FIRST TIME RENEWAL, you will need to complete 30 hours of Post License Education instead of Continuing Education.
Current VREB Members
S. Ronald Owens, Chairman R. Schaefer Oglesby, Vice Chair Marjorie Clark Florence Daniels Gerald S. Divaris Sharon Parker Johnson Herman Key, Jr. Frank J. Quayle Bry Phillips Taylor
D.P.O.R.
Department of Professional and Occupational Regulation
3600 West Broad Street
Richmond, VA 23230-4917
804-367-8500
D.P.O.R
Contact Person: Christine Martine, 804-367-8552
www.dpor.virginia.gov
Licensing Section: 804-367-8526
www.state.va.us/dpor/reb
Licensing Fees
APPLICATIONSSalesperson by education and examination - $75.00Salesperson by reciprocity - $64.00Business entity - $75.00Broker by education and examination - $85.00Broker by reciprocity - $85.00Broker concurrent - $65.00Firm - $125.00Branch Office - $65.00Transfer - $35.00Activate - $35.00
TELEMARKETING COLD-CALLING
ISSUE: In December of 2002, the FTC finalized amendments to the Telemarketing Sales Rule. At the center of the changes is the creation of a national "do-not-call" registry. Real estate professionals must now refer to this list before engaging in cold calling and refrain from calling anyone who has placed their number on the list.
TELEMARKETING COLD-CALLING
The registry will supplement the current company specific "do-not-call" list requirement. In a separate but similar effort, on June 26, 2003, the Federal Communications Commission (FCC) announced final amendments to their Telemarketing Rules that would among other things extend the National Do-Not-Call provisions of the FTC rule to intrastate calls.
TELEMARKETING COLD-CALLING
This is a significant change and as a result, all real estate professionals making interstate as well as intrastate calls must comply with the requirements of the National Do-Not-Call registry, regardless of state law exemptions.
TELEMARKETING COLD-CALLING
STATUS/OUTLOOK: On March 23, 2004, the FTC published a final rule requiring telemarketers to scrub their call lists no more than thirty-one (31) days prior to the date any call is made. This would replace the FTC's current requirement to scrub their lists every three months.
Problems with Homeowners Insurance - Overview
Homeowners insurance is the foundation for homeownership. Most homebuyers require a mortgage to purchase a home and mortgage lenders will not grant a loan without property insurance.
Problems with Homeowners Insurance - Overview
The booming housing market and historically low interest rates have recently spurred many potential homebuyers into action. However, upon entry into the market many are faced with the grim reality of the decreasing availability and affordability of homeowners insurance.
What is happening?
Current conditions are that prices are up and underwriting standards are tight. Fortunately, one of those - underwriting standards - can be addressed. Several scenarios are emerging throughout the country with Virginia being no exception.
What is happening?
• Unavailability. A homebuyer is unable to obtain homeowners coverage through traditional lines of insurance.
• No renewal of an existing homeowners policy. At the time the policy is set to expire, an insurance company refuses to renew it due to the homeowner's filing of too many claims.
What is happening?
Cancellation shortly after closing. An insurance company issues a policy, the real estate transaction closes and the company later revokes it within the allowable time under state law. In Virginia an insurance company may cancel a policy for almost any reason within the first 90 days so long as they give the consumer 30 days notice of the cancellation.
What is happening?
Claims of a previous owner. An insurance company will deny coverage on a property to be purchased due to claims filed by a previous owner. This scenario is usually because the insurance company finds derogatory information in an insurance claims database after the fact and decides that the level of risk is too high.
What is happening?
"Zero-dollar" claims. "Zero-dollar" claims refer to things that did not result in a loss for the insurer being listed as a claim in an insurance claim database. Most insurance companies consult claim databases when making underwriting decisions. For example, a person could call their insurance company about possibly filing a claim and have it later count against them - regardless of whether a claim was ever actually filed.
What is happening?
Limited coverage in specific geographical regions. In various regions of the country some major insurance carriers have decided not to write any new homeowners policies indefinitely, which only makes things worse. Taking into account the fact that many of these carriers service a large percentage of the marketplace, this shift has created a very difficult environment for those seeking to obtain new coverage.
What is happening?
The end result is that homebuyers trying to insure their new property are forced into very expensive plans that offer minimal coverage - all because of the insurance company's perceived risk of loss. Other homeowners find their insurance company refusing to renew their existing policy due to prior claims. They are then left with very little time to find another policy - especially in today's insurance environment.