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ISSUES TALKING POINTS The Voice for Real Estate™ in Massachusetts Table of Contents Issues Talking Points Affordable Workforce Housing 1 Agency 2 Banking in Real Estate 3 Escrow Deposits 4 Fair Housing 5 For Sale By Owner 6 Homeowners Insurance 7 Housing Market 8 Lead Paint 9 Mold 10 Property Disclosure 11 Radon 12 Rent Escrowing 13 Smart Growth 14 Subprime Fallout 15 Title 5 16 Transfer Taxes 17 Introduction As a designated spokesperson for the REALTOR® organization, the Massachusetts Association of REALTORS® is pleased to provide you with this copy of MAR’s Issues Talking Points. This publication contains information and material designed to assist association officers and directors in communicating the REALTOR® position on industry issues to members of the media and to state lawmakers. The 2008 edition of Issues Talking Points summarizes 17 of the most prominent issues currently facing real estate professionals in Massachusetts, as well as quick tips for dealing with the media and suggestions for discussing industry issues with legislators. While this resource book has been prepared specifically for state and local REALTOR® leadership and members of the MAR Legislative Contact Network, we also encourage its distribution to other interested members as a means of keeping all REALTORS® informed of the latest developments regarding legal, legislative and regulatory matters affecting the real estate industry. It is our intent to keep the contents of this publication as current as possible through regular updates, and we invite your comments and suggestions on topics for future issues of our Issues Talking Points. Please direct your remarks to: Eric Berman, communications director, Massachusetts Association of REALTORS®, 256 Second Ave., Waltham, MA 02451, or send an e-mail to firstname.lastname@example.org. Susan M. Renfrew Robert Authier 2008 President Executive Vice President AFFORDABLE WORKFORCE HOUSING It is difficult for low- and moderate-income families to attain the American Dream of home ownership in the current Massachusetts housing market. In addition, a lack of any significant new construction of multifamily property has led to generally high rent prices, making Massachusetts one of the top five most expensive states in which to live. With intense efforts underway across the state to protect open space, many communities are turning to land use controls to slow development, but this merely adds to higher costs for those development that do get built. These pressures may be prompting residents and businesses to relocate to other states. What REALTORS® Need to Know • As an important step toward homeownership, MAR recognizes that affordable workforce housing is an important component to the overall housing supply and quality of life for state residents. • MAR supports government efforts that encourage the production of new rental units and the recovery and rehabilitation of subsidized housing units to improve the state’s inventory of workforce housing stock. • Abandoned and unutilized city-owned residential and commercial property should be identified and developed as a means of further increasing the housing supply. • Comprehensive land use planning, including incentives that would encourage communities to update or develop master plans, is another essential component to ensuring a sufficient supply, not to mention future development of housing for the less affluent. • The creation of more clustered, mixed-income housing developments and the adoption of inclusionary zoning rules, that provide for density bonuses and require a percentage of all new developments to be affordable to lower-income families, also needs to be pursued. • MAR supports the continuation of funding authorization for the availability of low-interest home loans and financing provided by the secondary mortgage market. MAR/NAR in Action • MAR continues to work with housing groups to write proposed legislation that would create additional workforce housing in the Commonwealth. • NAR successfully lobbied the House to create a National Housing Trust Fund to help build, refurbish, or maintain affordable housing units. The Law • In 1969, the Commonwealth enacted the Massachusetts Low and Moderate Income Housing Act (Chapter 40B). o The law allows builders of affordable housing to bypass the local permit process when less than 10% of the housing units in a community are available for low- and moderate-income households, expediting the permit process. o In communities where the 10% threshold has not been met, developers of state and federally subsidized housing projects may apply directly to the state level and the Zoning Board of Appeals and Conservation Commission for permitting approval. Massachusetts Association of REALTORS® Page 1 of 17 2008 Leadership Talking Points AGENCY Massachusetts agency law provides options for brokers and consumers in creating relationships between buyers, sellers and their agents while providing the flexibility to choose an agency policy that best suits the needs of the company and consumers. The law provides clear guidelines on agency, requires written notification of buyers and sellers, and allows for designated agency along with dual agency. What REALTORS® Need to Know • Agents are required to advise prospective buyers and sellers of their right to be represented at the first personal meeting to discuss a specific property. • NAR requires each member office to disclose its policies regarding cooperation and any compensation offered to subagents, buyer/tenant agents, and/or brokers acting in legally recognized non-agency capacities, as well as any potential for disclosed dual agency to both buyers and sellers when entering into agreements with them. • REALTOR® principals are encouraged to develop and distribute to their agents an office policy on agency in consultation with an attorney and the agents in the office. MAR in Action • The agency reform law, passed by the state legislature in 2005, provides options for brokers and consumers in creating relationships between buyers, sellers and their agents while providing the flexibility to choose an agency policy that best suits the needs of the company and consumers. • To ensure members understand their options, MAR launched a member education campaign, developed new forms and other tools, and dedicated an area of its website to provide free educational materials along with sample forms to the members. The Law • Massachusetts agency law includes clear guidelines to permit the practice of facilitation in Massachusetts, requires express written approval of sellers for sub-agency to occur; allows for designated agency in Massachusetts and provides clear direction for dual agency to occur in transactions. • Designated agency is a process where the broker of record, with the consent of the consumer, designates one or more agents to represent a seller and designates one or more agents to represent a buyer in the same transaction. The relationship with the consumer begins and ends with the designated agent and does not extend to the other agents in the office. In a designated agency firm, the broker is a dual agent and retains all legal and ethical responsibility for the transaction. • The agency disclosure requirement stipulates that at the first personal meeting to discuss a specific property, prospective buyers and sellers be notified of the agency relationship using the state disclosure form, which must be signed by the buyer or seller and retained on record by the broker for a minimum of three years. • Agents need not obtain a signed disclosure form for every buyer who attends an open house, rather signs, posters, property description forms and other distributed listing literature may be substituted for individual notification of the agency relationship provided that the agency disclosure is more conspicuous than any other written terms on the material distributed at the open house. Massachusetts Association of REALTORS® Page 2 of 17 2008 Leadership Talking Points BANKING IN REAL ESTATE In spite of a long-standing prohibition against banks engaging in real estate investment and development, in 2000 the Federal Reserve Board proposed regulation that would permit financial holding companies to engage in real estate brokerage, property management, and relocation activities. Concurrently, the US Treasury Department developed a proposal that would allow financial subsidiaries of national banks to act as real estate brokers and managers. Approval of either of these proposals could dramatically alter the landscape of the real estate industry, as banks buy up or otherwise drive smaller, independent brokerages out of business. The issue for consideration is whether real estate brokerage is a financial activity (or incidental to a financial activity), as the banking industry argues, or whether it is a commercial venture that should remain off limits to financial services holding companies. What REALTORS® Need to Know • The firewall between banking and commerce provides consumers with more choices to meet their real estate needs by preventing large financial holding companies from buying up brokerages and driving others out of business. • The Fed/Treasury proposals would allow banks to control the real estate transaction from end-to-end, leading to higher consumer costs as banks bundle and cross-sell products and services. • Because they have access to confidential customer financial data, benefit from federal deposit insurance, receive favorable tax treatment, and have special access to credit, financial institutions would gain an unfair advantage over independent brokerages. • Allowing financial institutions to own real estate brokerages and engage in real estate transactions may conflict with the interest of their customers, threaten the safety and financial stability of the institution, increase the risk of taxpayer liability, and threaten the competitive structure of the real estate industry. • Since most brokers and agents are paid by commission, they are motivated to complete transactions as quickly as possible to the satisfaction of buyers and sellers. Banks, however, don’t operate in the same manner, and their interests tend to be much different – centered primarily on making a loan or selling mortgage insurance rather than helping buyers or sellers obtain the best deal. The Law • In November 1999, President Clinton signed into law the Gramm-Leach-Bliley Act, which repealed restrictions on the cross-ownership of banks, securities firms, and insurance companies. • However, in adopting the legislation, Congress decisively voted to retain the separation between financial activities and commercial businesses. • In fact, prohibitions were included in the law to prevent new financial services firms and national banks or their financial subsidiaries from engaging directly in real estate activities. • In addition, the Act allows consumers to block financial companies sharing or selling financial information to unaffiliated third parties in most instances. • Finally, the law stipulates that the Federal Reserve and the U.S. Treasury must agree on which new activities are permissible for a financial holding company and bank subsidiary to enter into in the future. Massachusetts Association of REALTORS® Page 3 of 17 2008 Leadership Talking Points ESCROW DEPOSITS In some real estate transactions disputes will arise between the buyer and seller that may complicate the transaction or cause the sale to fall through. When this occurs, disbursement of escrow deposits can become difficult, especially if it is unclear whether the buyer or seller, if either, is in default of the P&S agreement. Such scenarios can leave brokers vulnerable and exposed to liability, since no formal deposit dispute resolution guidance is provided to escrow agents under the law. What REALTORS® Need to Know • If the P&S agreement contains no formal instruction from the buyer or seller on disbursement of escrow funds, brokers may attempt to negotiate a settlement between the parties. • If negotiation is unsuccessful, another option is to file an interpleader lawsuit asking a court to decide how the escrow funds should be handled. However, this option exposes brokers to a severe risk of legal liability and costly fees associated with defending themselves in such a dispute. MAR in Action • In 2000, MAR filed an escrow dispute resolution bill to help protect escrow agents from liability in certain deposit disputes. • The escrow liability protection law, enacted in 2000 with strong support from MAR, clarifies an escrow agent’s responsibilities when a dispute arises and both the buyer and seller demand the deposit, and should also help minimize costly transactional delays and legal fees for both consumers and brokers. The Law • Massachusetts licensing law stipulates only that a broker “account for or remit” escrowed funds “within a reasonable time.” No other legal authority or direction is offered on how to handle escrow deposits, unless language is included in the purchase and sale agreement instructing the broker on how to disburse funds in the event of a dispute. • The escrow liability protection law, which took effect on Sept. 13, 2000, precludes a broker or other party who holds escrowed funds from being named as a defendant in a lawsuit if they are holding funds in accordance with the terms of the P&S agreement, or some other mutually agreed upon document, and the funds remain in an escrow account pending resolution of the dispute. • This statute preserves the rights of home buyers and sellers to settle their dispute out-of-court and provide mutual written instruction to the broker, or, if they choose, have the matter adjudicated, in which case the broker would be required to comply with the order of the court regarding the disbursement of funds. • Unfortunately, brokers who continue to hold escrow funds without specific guidance run the risk of being needlessly sued by either or both parties or unduly pressured into making the wrong decision with regard to who should receive the deposit. Massachusetts Association of REALTORS® Page 4 of 17 2008 Leadership Talking Points FAIR HOUSING REALTORS® play an important role protecting one of the basic rights provided to all persons living in the United States – the opportunity to live wherever they can afford to own or rent property. Approximately half of all new households formed in Massachusetts since 1980 are headed by immigrants. Despite being less prevalent than in the past, housing discrimination still exists and REALTORS® must never participate in or be party to it. What REALTORS® Need to Know • The widespread use of the multiple listing services is helping to ensure that REALTORS® present today’s buyers with a complete and accurate picture of all homes currently available for sale on the market. • In 2006, the United States Department of Justice initiated Operation Home Sweet Home, a concentrated program to expose and eliminate housing discrimination in America. This initiative focuses on improved targeting of discrimination tests, increased testing, and public awareness efforts. • Fiscal Year 2007, the Department conducted a record number of undercover housing discrimination investigations, filed 30 lawsuits alleging unlawful housing discrimination, and obtained settlements and judgments requiring the payment of over $5 million in monetary damages to victims of discrimination and civil penalties. o MAR has concerns about fair housing testing as an effective approach to eliminating acts of discrimination. While testing may identify and penalize violators, it does not address or correct the root cause of discrimination. MAR/NAR in Action • REALTORS® are committed to uphold the fair housing laws through Article 10 of the Code of Ethics. • MAR was the leading advocate for adoption of the state’s mandatory continuing education requirements for real estate licensees, which took effect in 1999 and includes classroom instruction on fair housing issues. • Hiring of minority brokers and continuing education on issues of fair housing are two initiatives MAR supports in its ongoing effort to promote equal opportunity in housing. • NAR’s Fair Housing Initiatives Program was established to provide funding to public and private entities formulating programs that prevent or eliminate discriminatory housing practices. The Law • The federal Fair Housing Act makes it illegal to deny or restrict a choice of housing to any person on the basis of race, color, religion, sex, disability, familial status (children) or national origin. o As defined in the 1988 amendments to the Fair Housing Act, a disability may be either a mental or physical handicap, and includes AIDS, cerebral palsy, epilepsy, mental illness or retardation, and visual or hearing impairments. • State law prohibits practices that deny access to housing based on age, ancestry, marital status, sexual orientation, status as a veteran or member of a military service, or recipient of public or rental assistance. Massachusetts Association of REALTORS® Page 5 of 17 2008 Leadership Talking Points FOR SALE BY OWNER In a strong housing market, the For Sale by Owner approach to selling one’s home can be enticing, but the reality is few homeowners find it to be successful. In fact, despite record home sales and the creation of Internet FSBO websites in recent years, most home sellers rely upon the expertise of a real estate professional to help sell their home. FSBO activity has declined from 18% of U.S. home sales in 1997 to 13% in 2007, according to data from the NAR 2007 Profile of Home Buyers & Sellers Massachusetts Report. REALTORS® will need to find new ways to cultivate FSBO listings now that the national Do-Not-Call Registry has taken effect. What REALTORS® Need to Know • FSBO activity has declined from 18% of U.S. home sales in 1997 to 13% in 2006 - this may be due to increasing complexity of the property transaction process, and pricing issues and time constraints facing homeowners. • A 2006 NAR buyer and seller study found that in Massachusetts, the median selling price for agent-assisted home sales was 23% higher than for FSBO sales ($385,000 for agent-assisted vs. $312,000 for FSBOs). • REALTORS® have the market knowledge, negotiating skills, and marketing expertise to properly price and sell a home; are familiar with relevant laws and disclosure requirements; are trained to qualify prospective buyers, and hold no emotional attachment to the property that might compromise the process. • FSBOs infrequently (22%) use Internet marketing, yet 80% of buyers use the Internet when searching for a home. Also, FSBOs cannot gain access to the MLS, nor to a real estate agent’s client and personal contacts, yet 80% of sales are the result of such contacts. • The Federal Telemarketing Sales Rule prohibits calls placed by real estate agents/brokers to property owners and other consumers to arrange an in-person meeting to discuss their real estate needs, unless it is to inform a homeowner of interest in the property on behalf of a client; or if the consumer has made an inquiry of the agent within the past 90 days; or if the agent has sold a product or service to the consumer within the past 18 months. The Law • Amendments to the federal Telemarketing Sales Rule adopted by the Federal Trade Commission in 2003 created a national Do-Not-Call Registry as a tool for consumers to protect themselves from unwanted solicitation calls from telemarketers and other businesses with which they did not previously have a relationship. • The regulations prohibit most telephone sales solicitations, including calls placed by real estate agents and brokers to property owners and others consumers to arrange an in-person meeting to discuss their real estate needs. Telemarketers who cold call persons registered with the national Do-Not-Call Registry in violation of the law will be subject to a fine of up to $11,000. • Exceptions to the new restrictions imposed by the Telemarketing Sales Rule are as follows: REALTORS® can call a FSBO property owner who has signed up for the Do-Not-Call Registry if the agent is doing so expressly to inform the homeowner of interest in the property on the part of a client or customer. Businesses which have sold a product or service to individuals registered on the national Do-Not-Call Registry are permitted to contact those persons for up to 18 months after the sale, and the law also permits calls to consumers who makes an inquiry to a business for up to 90 days after the inquiry. Massachusetts Association of REALTORS® Page 6 of 17 2008 Leadership Talking Points HOMEOWNERS’ INSURANCE The inability to obtain affordable homeowners’ insurance is a serious threat to the residential real estate market. A surge in the number and size of property casualty claims leading to lucrative lawsuits has conspired to adversely affect the availability and affordability of insurance coverage. In reaction to rising claims and losses, insurers have begun limiting the number of new policies written, increasing premiums, instituting new policy exclusions for some hazard claims, and tightening underwriting criteria for borrowers and properties. What REALTORS® Need to Know • Today, the use of credit scores to set insurance premiums, as well as the decision of some insurers to stop writing policies in certain states and high-risk areas, is driving up insurance costs and, in some cases, creating a significant hurdle to homeownership, especially for low-income, first-time buyers and those on fixed incomes. • Homeowners’ insurance is a necessary component in securing a mortgage and buying and selling a home. If a potential homebuyer is unable to obtain or afford the required insurance, the sale will not be completed. As a result, potential homebuyers are priced out of the market. • Cape Cod and coastal communities around the state are the hardest areas hit in Massachusetts with insurance hikes and boycotts due to natural disasters. • Many Massachusetts residents, particularly coastal residents, have had to turn to the state’s insurer of last resort, the Massachusetts Property Insurance Underwriting Association (aka MPIUA or the Mass FAIR Plan), which provides basic property insurance for those unable to otherwise obtain coverage. • In 2007, the Supreme Judicial Court upheld a 2006 decision by the state insurance commissioner to approve Fair Plan rate increases of 25% on Cape Cod, the islands and other coastal areas, and 12.4% elsewhere. MAR/NAR in Action • NAR conducted a nationwide fact finding meeting regarding flood insurance issues and the resources that REALTORS® need to better service their clients. • The association supports legislative efforts that would prohibit the use of numerical credit scores and other credit rating systems by insurers to set rates for homeowners insurance. Credit scores should be used to measure a borrower’s risk of defaulting on a loan, not to deny a person’s eligibility to become a homeowner. • NAR succeeded in efforts to have $220 million appropriated for flood map modernization in FY 2008. The Law • Currently, potential policyholders are underwritten for risk through the use of insurance risk scores. The Association supports legislative efforts that would prohibit the use of numerical credit scores, a measure that should be used to measure a borrower’s risk of defaulting on a loan, not to deny a person’s eligibility to become a homeowner. • NAR supports the Nation Flood Insurance Program (NFIP) reform legislation that would increase the borrowing authority of increase premiums on repetitive loss properties that have a significant negative impact on the NFIP, increase the number of properties in the NFIP, and increase coverage limits. Massachusetts Association of REALTORS® Page 7 of 17 2008 Leadership Talking Points HOUSING MARKET The housing market in Massachusetts has received a lot of media attention over the past several years, from the significant run-up in prices and sales through mid-2005 to the more recent declines and relative flattening of the market. Given the steep home price appreciation in the first part of the decade, market changes have been viewed negatively by the media and consumers, fueling fears of an even larger correction ahead. In the past year the sub-prime mortgage and foreclosure crisis have only compounded these concerns. Nonetheless, it is important to note that sales are still at historically high levels, mortgage rates are still at historical lows, and inventory has not outpaced demand. What REALTORS® Need to Know • Despite the negative rhetoric, the Massachusetts housing market fundamentals remain sound: interest rates are low; inventory is healthy; and sales are historically strong. • Median Prices – Since 2002, the median price of a single-family home increased 24%, from $279,000 to $345,500, and the median price of a condominium increased 41% from $200,000 to $282,000. The 2007 median price of a single family home declined less than 2% from 2006 ($350,000 to $345,500); and the 2007 median price of a condominium increased 2.5% from 2006 ($275,000 to $282,000). • Sales – 2007 single family home sales declined 4.3% from 2006 (from 43,378 to 41,510). 2007 Condominium sales declined 4.6% from 2006 (from 20,747 to 19,789). 2007 condominium sales were the third highest since 1990. • Inventory – Inventory levels are up over levels from the first half of the decade, however, a comparison of 2007 to 2006 shows recent signs of improvement. Residential listings in 2007 declined 17% from 2006 (717,500 to 599,000 listings), resulting in a 13% drop in inventory from 11.2 months of supply to 9.8 months of supply. This is still well below the 15 to 16 months of supply available during the recession of 1990 to 1992. • Mortgage rates – mortgage rates are historically low. In 2007, the 30-year fixed rate mortgage averaged 6.6% – the sixth lowest rate since 1972. MAR in Action • MAR reports monthly and quarterly on housing market activity, including sales, prices, and inventory, and MAR leadership is frequently asked by media to comment on the market. • To better educate members and consumers in a changing housing market, MAR is launching several initiatives: o local association matching grants for consumer awareness programs; o a monthly REALTOR® Housing Market survey to gain front-line insight into housing market trends; o improvements to the consumer side of marealtor.com with more relevant and current information; o advertising via traditional and social media to stress favorable market conditions and REALTOR® value; o improved media relations to clarify housing trends, and provide deeper understanding of the market; and o enhancements to the REALTOR® toolkit on marealtor.com with talking points, downloadable brochures, email banners and consumer giveaway items. Massachusetts Association of REALTORS® Page 8 of 17 2008 Leadership Talking Points LEAD PAINT Lead-based paint poses a serious public health risk, especially to young children who can suffer brain, kidney and nervous system damage after digesting or inhaling chipping, peeling or dust particles of lead paint. In Massachusetts, an estimated 70% of all housing units, contain lead paint. However, less than 2% of all units have been de-leaded due, in part, to the high cost to de-lead ($5,000 to $20,000 per home depending on size). Massachusetts was the first state to pass lead paint legislation and has one of the toughest lead paint laws in the country. What REALTORS® Need to Know • REALTORS® have an affirmative duty to ensure the property owner completes the appropriate lead paint notification form and that the prospective buyer or tenant receives it. Failure to meet this obligation can expose both to substantial liability. • It is illegal for property owners to evict, refuse to rent, or otherwise discriminate against families with young children in order to avoid de-leading housing units. MAR in Action MAR was a leading advocate for amendments made to the lead law in 1994 which resulted in: • elimination of strict liability provisions in the law, • acceptance of encapsulation as an approved method of abatement, and • increase in economic incentives for de-leading from $1,500 to $2,500 per unit. The Law • The Commonwealth’s lead paint statute requires lead abatement in residential dwellings built before 1978 when a child under the age of six resides on the property. Property owners must remove or cover (encapsulate) dangerous levels of lead on surfaces measuring five feet from the floor or below. • Notification/Other requirements: Sellers – provide prospective buyer with Property Transfer Lead Paint Notification/Certification forms, disclose pre-existing lead status related documents, and allow a 10-day period for buyer to hire licensed lead inspector. Landlords – provide prospective tenant with Tenant Lead Law Notification/Certification forms, and disclose pre-existing lead status related documents. Additionally, landlords must notify residents of renovation work that will disturb more than 2 square feet of painted surface, unless state-certified inspector has deemed surface lead-free, or the work is in response to an emergency situation. Requirements apply to both owner occupied and non-owner occupied properties. Vacation Property Owners – are exempt from de-leading requirements provided no child under the age of six resides in the unit for more than 31 days, no loose or peeling paint exists within the unit, and the owner provides the tenant with the Short-Term Vacation or Recreational Exemption Notification form. • The Lead Paint Law contains numerous caveats, exemptions, and grandfathering provisions. Consult legal counsel to ensure complete and accurate compliance with the Lead Paint Law requirements. Massachusetts Association of REALTORS® Page 9 of 17 2008 Leadership Talking Points MOLD In recent years, toxic mold litigation and high profile mold claims have received increased media attention. There are over 100,000 types of mold, yet only a few molds can cause infection in healthy humans. Some molds cause infections in people with compromised immune systems. The biggest health problem from exposure to mold is allergy and asthma in susceptible people. A lack of a definitive set of comprehensive laws and standards is often blamed as contributing to the confusion about mold. What REALTORS® Need to Know • Mold is a material defect and needs to be disclosed in the transaction process. • Home inspections do not necessarily include an environmental assessment that would detect mold exposure. • A number of insurance companies have either eliminated mold coverage or offered special coverage, although companies are beginning to incorporate mold coverage into their existing policies. MAR/NAR in Action • NAR supports federal indoor air quality research, as well as efforts to educate homeowners about known environment hazards that present significant risks to health. • NAR is working to help consumers and practitioners by providing information and education about mold to enable homeowners to make more rational decisions in this area. The Law • There is not enough reliable research concerning the health effects of mold exposure and subsequently there is a lack of government standards related to indoor levels of toxic mold presence. • Under proposed federal legislation, landlords and sellers would be required to perform mold inspections and would subject offenders to punitive damages, attorneys’ fees and costs while also directing EPA and HUD to promulgate standards for inspection and disclosure. • On the state level, more than two dozen mold bills have been considered by state legislatures in recent years. At least a dozen bills passed, several have failed, and others are still pending. The majority deal with the licensing of investigators and remediators, studies of health impacts, requirements for insurance and real estate transactions, and building code guidelines. • The development of uniform mold standards and guidelines for testing and remediation will have a positive effect in many areas, including construction, real estate and insurance. Massachusetts Association of REALTORS® Page 10 of 17 2008 Leadership Talking Points PROPERTY DISCLOSURE In Massachusetts, real estate brokers and agents are required to disclose to buyers known material facts about a property’s condition, including psychological stigmas, regardless of whether they are asked. Homeowners are under no obligation to volunteer problems or defects with the property to agents or buyers, although over 30 states have passed property condition disclosure laws for property owners. What REALTORS® Need to Know • Real estate professionals and sellers who are asked questions about the condition of a property may not answer untruthfully. • REALTORS® who factually misrepresent a physical or psychological feature known to be part of a property’s history or otherwise mislead a buyer with their answers, expose themselves to legal liability and expulsion from the Association due to violations of the Code of Ethics. • To effectively deal with property disclosure issues, ask the seller to complete a property condition disclosure form, and provide all prospective buyers with a copy of the form. MAR in Action • MAR believes that compliance with existing disclosure laws is an important component of the duties owed to both customers and clients. • Prospective buyers should not assume that the seller or broker knows everything about a property’s condition. • MAR believes that mandating residential seller disclosure of known material property defects would further protect consumers in the home buying process. The Law • The Massachusetts Consumer Protection Act imposes an affirmative duty on all real estate licensees (buyer or seller agent), to disclose any known physical defects about on-site conditions that may influence a buyer’s decision to enter into a transaction. • This law does not require real estate brokers and salespersons to investigate property conditions not readily observable to the buyer. • A broker’s duty to disclose off-site problems appears to be limited to: physical conditions which are known to the seller, but not known and not readily observable by the buyer, and are sufficiently material to affect the value or use of the property. • Agents must also adhere to the Commonwealth’s stigmatized property law, enacted in 1998 which clarifies whether or not “psychological stigmas” concerning a property must be disclosed. While real estate professionals have no duty to investigate or disclose whether a listing has been the site of a felonious act (e.g., murder, suicide), or is allegedly inhabited by ghosts, licensees must answer such questions honestly and to the best of their knowledge when asked. The law clearly states that questions regarding the AIDS/HIV status of any current or former occupant of a residential dwelling are not to be answered by agents because these persons are a protected class under the federal fair housing laws. Massachusetts Association of REALTORS® Page 11 of 17 2008 Leadership Talking Points RADON Radon is an odorless, colorless, tasteless radioactive gas produced naturally in the ground by the normal decay of uranium and radium. Present in certain rock formations, radon seeps into homes and buildings through foundation cracks and openings, possibly developing into radioactive particles, which can then be inhaled. The U.S Surgeon General has stated that second to smoking, radon is the largest cause of lung cancer. In most cases, an elevated radon level can be corrected simply and economically through increased ventilation of the home, or prevention of radon infiltration. What REALTORS® Need to Know • Radon can be a concern for some home buyers, but it is not a significant problem in the majority of residential property transactions since radon mitigation can be easily accomplished in most instances. • Buyers have the opportunity to conduct short and long-term tests to identify potentially high-levels of radon. • Property disclosure forms provide buyers with any prior history of radon problems in a home. • REALTORS® should encourage homeowners who are concerned about their potential exposure to radon to test their home for its presence. MAR in Action • MAR supports increased education of homeowners to make them aware of potential radon problems and of their responsibility to disclose to real estate brokers and agents known indoor air problems that present a significant health risk. • MAR strongly opposes mandatory radon testing during real estate transactions. • Because buyers already have the opportunity to place specific contingencies in their offers, MAR opposes suggested legislation requiring that all residential Offers to Purchase contain specific language notifying prospective buyers of the right to make their offer contingent on a radon test. The Law • At present there is no state or federal law requiring the inspection or disclosure of radon in home sales transactions. • In recent years, the Massachusetts Legislature has considered legislation which would require owners of condominiums and residential dwellings of 1-4 units to inform prospective buyers and real estate agents, in writing, of any testing of the unit/property for radon during the current period of ownership. • Legislative proposals also have sought to require property owners to share the results of any radon tests or a copy of each report with buyers, as well as inform purchasers about the availability of inspections to determine the level of radon in the unit/property. • Nationally, 18 other states have enacted disclosure laws regarding the dangers of radon. Massachusetts Association of REALTORS® Page 12 of 17 2008 Leadership Talking Points RENT ESCROWING Rent escrowing is the process by which disputed rent is paid by the tenant to a third party pending adjudication on the merits of the tenant’s assertion that the property is in violation of the state sanitary code. If the court finds that the rent payment was properly withheld for violation of the state sanitary code, the tenant would receive those funds back. If, however, it is determined that the landlord was entitled to the back rent because the alleged sanitary violation did not occur, had been corrected or was not the fault of the landlord, then the landlord would receive the funds. Rent escrowing helps protect landlords who provide housing that is in compliance with state Code from being deprived of rental income owed to them by tenants who improperly attempt to withhold payment. Unfortunately, such protections are not afforded to property owners in Massachusetts. What REALTORS® Need to Know • Abuse of the existing rent withholding law could adversely impact the availability of reasonable-cost rental housing by preventing landlords from recouping improperly held rent, and leading to the costly process of eviction for non-paying tenants. • Mandatory rent escrowing laws would clarify the process when tenants allege violations of the state sanitary code and attempt to withhold rent. Tenants would have to put disputed rent in escrow account while dispute is adjudicated. • Approximately three-dozen states have successfully enacted rent escrowing laws and found that they are an equitable mechanism for resolving landlord-tenant disputes. The U.S. Supreme Court also has determined that rent escrowing is constitutionally sound. MAR in Action • MAR supports two legislative approaches on rent escrowing – mandatory rent escrowing for all residential tenancies, and statutory provisions that would afford a landlord and tenant the right to include such a provision in their agreement. The Law • Under Massachusetts law, tenants have the legal right to withhold rent from the landlord for violations of the state sanitary code from the date the landlord has notice of a breach of the warranty of habitability. The tenant must first notify the landlord in writing, then contact the local board of health to inspect the apartment or unit for health code violations. If this procedure is followed and a violation is listed, tenants may withhold rent until the problem is fixed. • Failure to follow proper procedure or deliberate attempts by tenants to initiate this process as a means of withholding rent can lead to eviction for the tenant. Nonetheless, this provides the landlord no guarantee that properly owed back rent will be obtained. Except for invoking eviction proceedings, Massachusetts law offers no recourse for a landlord to collect rent that is improperly withheld due to alleged violations of the local and state sanitary codes, except a subsequent lawsuit for back rent. Massachusetts Association of REALTORS® Page 13 of 17 2008 Leadership Talking Points SMART GROWTH Concern over the increased demand for housing coupled with an increased demand on public services and infrastructure has caused dozens of Bay State communities to impose growth controls on new home development. Through Smart Growth initiatives, cities and towns can better plan for and allow future growth while also protecting the environment and the character of their communities. What REALTORS® Need to Know • The MAR supports a Smart Growth agenda in all cities and towns. • Smart growth offers an unprecedented opportunity to make significant achievements in advancing sensible development that will support the development and construction of housing for all affordability levels. • Smart growth improves the quality of life in the community; helps accommodates growth while retaining community character; helps define and guide the future economic stability of the community; and ensures that land is developed not only efficiently, but also with care and thoughtfulness toward the future. MAR in Action MAR has proposed three new smart growth initiatives dealing with the clarification of permit caps, creating uniform standards for wetlands, and promoting density bonuses on the local level, each of which are aimed at increasing housing production through less restrictive land use and zoning controls. The Law • Massachusetts law does not specifically address the issue of “smart” growth. However, individual cities and towns, may by local government approval, establish limits or moratoriums on residential and commercial development, as well as zoning restrictions, special permit procedures, and master plans to restrict growth. • Since 2004, two new laws, known as Chapter 40R and Chapter 40S, have been enacted, both of which provide financial incentives to communities that create special zoning districts where higher density, mixed-use housing can be developed. o Chapter 40R – Communities that adjust their zoning to allow for increased development near public transit stops and town centers are eligible for upfront payments of $1,000 per unit from the state and an additional $3,000 per unit once building permits are issued. Twenty percent of all units in 40R districts must be priced as “affordable” or below market rate units. o Chapter 40S – This law commits the state to compensating communities for any difference between the property taxes it collects from new homes and the cost of educating the children who move into these smart growth development districts. Massachusetts Association of REALTORS® Page 14 of 17 2008 Leadership Talking Points SUBPRIME FALLOUT During the real estate boom, many lenders originated risky mortgages with floating interest rates and weak underwriting standards (especially as investor demand of mortgage-backed securities increased). Now that the market is in a downturn, many home owners who used subprime loans to either purchase or re-finance their homes are facing the prospect of losing their home through foreclosure. In many cases, this is due to an increase in monthly payments as adjustable mortgage rates re- set, or to a decline in the value of a home to below outstanding loan amounts. What REALTORS® Need to Know • There are now federal and state programs that may offer relief to home owners facing the prospect of foreclosure because of subprime loans; (i.e. FHA at the federal level and MassHousing at the state level) • REALTORS® have the knowledge and expertise in the housing market to direct consumers to resources and information that will help them understand the steps they could take to help prevent foreclosure. • The majority of delinquencies never lead to a foreclosure as many home owners are able to catch up and make mortgage payments. • While abusive lending does occur primarily in the subprime market, not all subprime loans are abusive or problematic. In fact, responsible subprime lending has a role in the marketplace and has helped thousands of consumers across the state achieve home ownership. • As a result of this unfortunate situation, the housing market will ultimately benefit in the long-term from the more stringent underwriting standards that are now in place. MAR in Action • MAR is working with the Attorney General’s office to create educational resources for both consumers and Realtors® on how to avoid foreclosure. • MAR has created a Loss Mitigation Certification course to educate REALTORS® about the loss mitigation process and understand ways to help home owners avoid foreclosure when possible. The Law New Massachusetts mortgage lending legislation adopted in 2007 offers relief to home owners facing foreclosure. The law offers several important protections for home owners including a 90 day “Right to Cure,” that gives the mortgagee 90 days to bring mortgage payments up-to-date. In addition to new licensing and oversight requirements, the creation of education centers to promote information sharing for first-time homebuyers and owners facing foreclosure. Massachusetts Association of REALTORS® Page 15 of 17 2008 Leadership Talking Points TITLE 5 Title 5 regulations refer to that portion of the Massachusetts Environmental Code that governs on-site subsurface sewage systems, including residential septic systems. The Massachusetts Department of Environmental Protection first instituted Title 5 in 1978 to protect the state’s drinking water supplies and coastal waters and rivers, and adopted revisions in 1995 and 2000. What REALTORS® Need to Know • The state’s Title 5 regulations require inspections on septic systems and cesspools before a home is sold, enlarged, the use of the home changes, or a transfer of title occurs. • Although Title 5 is a state regulation, it is a minimum code therefore local boards of health may adopt ordinances that are more stringent than Title 5. • Eligible property owners can qualify for a tax credit of up to $6,000 or 40% of the cost of a septic system upgrade, whichever is less, over a five-year period. The credit applies to primary residences only, with the maximum claim per year limited to $1,500. MAR In Action • MAR opposes mandatory inspection of septic systems upon transfer, favoring a more systematic process, especially in environmentally-sensitive areas. Inspection upon transfer is an arbitrary method that often allows polluting systems to go undetected or corrected, and subjects only about 5 % of all systems to review each year. • MAR continues to call for the establishment of uniform Title 5 regulations for all communities in the Commonwealth, and has introduced legislation to enact this change. A uniform public-safety-based Title 5 code will provide consistency with other statewide housing regulations (e.g., electrical, plumbing and building codes). Uniform Title 5 regulations will also thwart the practice of communities using septic regulations for non-public- safety purposes (e.g., zoning, minimum lot sizes). • To aid all property owners, MAR has filed a bill seeking to broaden the eligibility criteria for the Title 5 tax credit in order to permit owners on non-owner occupied dwellings, including single- and multifamily homes and commercial properties to apply for the tax credit. The Law • Title 5 requires inspections of septic systems and cesspools before a home is sold, enlarged, the use of the home changes (from residential to commercial), or a transfer of title occurs. • Should weather prevent an inspection within 24 months prior to a sale or transfer, the inspection must occur as soon as weather permits, but no later than six months after the sale or transfer. • If a system fails inspection, an upgrade, repair(s), or replacement is typically required within two years of the inspection. Massachusetts Association of REALTORS® Page 16 of 17 2008 Leadership Talking Points TRANSFER TAXES Several communities in the Commonwealth have proposed transfer taxes to be paid by home buyers and/or sellers upon sale of a property. Such taxes would increase the bottom-line price of a home by thousands of dollars. Communities proposing transfer taxes typically envision them as a way to fund community-wide resources and programs such as affordable housing, school improvements, or public works projects. Transfer taxes effectively single out a small segment of the population to pay for community-wide resources, and amount to nothing more than an entrance or exit tax for the privilege of home ownership. What REALTORS® Need to Know • A community-wide benefit such as affordable housing or a public works project should be paid for by the entire community. Transfer taxes are inequitable and discriminatory as they single out a small segment of the population (home buyers and sellers) to pay for a community-wide need. • Unlike a home purchase which can be financed, payment of a sales tax cannot be financed, and would require a cash outlay of thousands of dollars at closing from the buyer or a reduction of the seller’s proceeds. Such equity stripping would substantially increase the cost of selling and buying a home, pricing many buyers and sellers out of the market. • Many proposed transfer taxes seek to raise revenue to fund affordable housing. The Legislature has already given all cites and towns many equitable tools to create affordable and workforce housing through passage of the Community Preservation Act, Chapter 40R, Chapter 40S and Chapter 40B. These tools are available for all communities to use. • Transfer taxes are exclusionary because they increase the cost of home ownership and in effect create an additional barrier to entry to the community. Buyers today have many choices, and are likely to look more closely at alternatives in surrounding communities that do not have a transfer tax. • Because the real estate market is highly sensitive to economic downturns; transfer taxes would provide an unstable source of revenue for a current and ongoing community need. • The tax would subvert the voter approval process inherent in a Proposition 2-1/2 override in which voters can decide for themselves whether to increase their own property taxes. MAR In Action • In May 2007, local REALTORS®, with support from MAR, lobbied to defeat a proposed transfer tax in Westwood that would have imposed at 2% tax on home sales to fund improvements to the public schools. • In July 2007, MAR successfully lead a grass roots effort and lobbying campaign to defeat a proposed transfer tax on Martha’s Vineyard that would have imposed at 1% tax on home sales over $750,000 that would have funded affordable housing. Massachusetts Association of REALTORS® Page 17 of 17 2008 Leadership Talking Points
"ISSUES TALKING POINTS"