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									                                Legal Update

                          J an ua r y 2 0 0 9         Executive Office:        Legislative Office:
                                                      525 South Virgil Ave.    980 Ninth St., Ste. 1430
                                                      Los Angeles, CA 90020    Sacramento, CA 95814
                                                      213.739.8200             916.444.2045

1.     License Number on Business Cards

Effective July 1, 2009, pursuant to Senate Bill 1461, real estate licensees must disclose
their DRE license identification number on all solicitation materials intended to be a first
point of contact with consumers, as well as on all real estate purchase agreements in
transactions where the licensee is acting as an agent. These materials include business
cards, stationary, advertising flyers and other materials “designed to solicit the creation of
a professional relationship between a licensee and a consumer”. The law does not require
the broker’s license number to be disclosed and it excludes print ads, electronic media
ads, for sale signs and classified rental ads. The Department of Real Estate is expected to
issue clarifying regulations before the effective date.

2.     Foreclosure Notices for Tenants

According to Senate Bill 1137, effective July 1, 2008, any property owner who acquires
the property through foreclosure (“REOs”) must give any tenant on the property a 60 day
notice to vacate before the tenant can be forced to leave. (This law does not supercede
rules in rent control jurisdictions that require a longer notice, nor does it supercede
statutes such as “Section 8” which also require more notice before tenants can be
evicted). In addition, effective September 8, 2008, whoever posts a notice of sale for a
foreclosure must also post and mail a notice to the tenant informing the tenant of the right
to the above described 60 day notice before they can be evicted. This notice must be in
six languages (English, Spanish, Chinese, Tagalog, Korean, and Vietnamese).

3. Sending Pre-Foreclosure Notices

Also pursuant to SB 1137, and effective for five years following September 8, 2008, all
lenders who foreclose on loans made between 2003 and 2008 must, at least 30 days
before filing a notice of default, contact the borrower in person or by phone in order to
assess the borrower’s financial situation and explore options for avoiding foreclosure.
The letter must also advise borrowers of their right to request a meeting in person with
the lender within 14 days, and must provide a toll free number for a HUD certified
counseling agency. The lender cannot initiate the foreclosure until at least 30 days after
contact with the borrower or 30 days following a diligent effort to contact the borrower
and diligence in this case means mailing a notice which includes the lender’s toll free
number, followed by three phone calls on three different days at three different hours,
followed by certified letter return receipt requested. This law does not apply if the
borrower has already filed for bankruptcy, has surrendered the home, or has contacted a
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January 2009
Page 2

person or entity whose primary business is advising those who have decided to leave their
home how to extend the foreclosure process and avoid their contractual obligations.

4. REO’s Duty to Maintain Property

SB 1137 also provides that anyone who acquires property through foreclosure must
“maintain” the exterior of the property if it is vacant, and if they violate the law local
governments may impose civil fines on these persons or entities of up to $1,000 per day,
as long as the owner has been given at least 30 days notice and an opportunity to remedy
the problem. “Failure to maintain” under this law means failure adequately to care for
the exterior of the property, which includes not permitting excess foliage growth, not
taking action to prevent trespassers or squatters from being on the property and failing to
prevent mosquito larvae from growing in standing water.

5. Taxation of Short Sales

Under both state and federal law any taxpayer who closes a “short sale” on their principal
residence may exclude debt relief from their taxable income if the loan in question is a
purchase money loan secured by a mortgage or deed of trust on that property. This rule
also applies to purchase money loans that have been refinanced and equity lines of credit
where the proceeds were used to purchase, build or improve the house. In other words,
there is an income tax exclusion for cancellation of debt income generated from a
discharge of “qualified principal residence indebtedness”. Under federal law such short
sales will be exempt from income tax through 2012. Under California law, however, the
exclusion from income tax for short sales only lasts until the end of 2008. Therefore,
Californians who close short sales next year will have to pay California income tax, but
not federal income tax, unless the taxpayer has filed for bankruptcy protection, or is

6. Disclosure of Dual Roles

Senate Bill 1737, effective January 1, 2009, provides that whenever a real estate licensee
acting as a listing or selling agent in a sale, lease or exchange transaction also undertakes
to arrange financing in connection with the transaction, or whenever an agent already
arranging for financing in such a transaction also undertakes to act as listing and selling
agent in the same transaction, the agent has a duty to provide a “written disclosure of
those roles” within 24 hours of undertaking them. Thus, when a buyer submits an offer
from an agent who is also representing the buyer as a loan broker that fact will have to be
disclosed either in the offer or before. The disclosure must be made to all the parties in
the transaction, including the seller and the listing agent. An existing DRE regulation
still in effect until January 1, 2009 merely provides that any licensee who acts as an agent
for either party in a sale, lease or exchange who is also getting paid by a lender in the
transaction must disclose the compensation prior to close.
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January 2009
Page 3

7. Rights of Tenants Who are Victims of Domestic Violence, Sexual Assault or

Effective September 25, 2008, Assembly Bill 2052 provides that a tenant may notify
his/her landlord in writing that he/she or a household member was a victim of an act of
domestic violence, sexual assault or stalking and therefore intends to terminate the
tenancy. Tenants will be able to do this upon giving a 30 day notice if they attach to the
notice a copy of a temporary restraining order (TRO), an emergency protective order or a
specified written report by a peace officer (police report). The TRO, protective order or
police report must have been issued within the last 60 days. When this happens the
remaining tenants are not released from their obligations. Assembly Bill 2052 also
modifies CCP Section 1161 to provide that if a tenant commits an act of domestic
violence, sexual assault or stalking against another tenant or subtenant and the victim or a
member of the victim’s household has vacated the premises, there is a rebuttable
presumption that the first tenant has committed a nuisance and the landlord therefore has
the right to evict that tenant immediately.

8. Title Company Representatives

SB 133, effective January 1, 2009, provides that any person employed by a title insurer or
controlled escrow company whose primary duty is to solicit, offer, market or sell title
insurance (i.e. title marking representatives), must obtain a valid certificate of registration
issued by the Insurance Commissioner. In addition, this law adds two items to the list of
practices that are prohibited as unlawful inducements for the referral of title insurance
business. 1) Advertising or paying for the advertising for someone else in a newspaper,
newsletter, magazine or other publication, and 2) Paying for someone else’s food,
beverage or entertainment expenses. Prior to the enactment of this bill there is a general
prohibition in existing law against providing any consideration, compensation or
commission for the referral of title business; what’s significant about Senate Bill 133 is
that effective January 1, 2009 title marketing representatives can provide absolutely no
expenditures for food, beverages or entertainment. The only promotional items that are
permitted are items that have a permanently affixed title company logo and a value of
$10 or less. Gift certificates and gift cards are not permitted promotional items. In
addition, while title marketing representatives may still provide educational materials,
these materials must be exclusively related to the business of title insurance.

9. Foreign Investment in Real Property Tax Act (FIRPTA)

HR 3221, which became effective in July 2008, made an adjustment to the Foreign
Investment in Real Property Tax Act (FIRPTA). FIRPTA requires buyers, buyer’s agents
and seller’s agents to withhold or cause to be withheld, from the seller’s proceeds, 10%
of the gross sales price if the seller is a foreign person as defined under this law. If the
seller is not a foreign person, on transactions with a sales price over $300,000, or
transactions with a sales price under $300,000 where the buyers will not be occupying the
property as their primary residence, the real estate agents and buyers must make sure that
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January 2009
Page 4

the sellers sign “Affidavits of Non-Foreign Status” wherein they attest under penalty of
perjury that they are not foreigners. The form also requires the seller to provide his/her
taxpayer identification number or social security number. Some sellers, while willing to
sign the form, are unwilling to provide a social security number because they don’t want
the buyer or agents to have knowledge of this number. HR 3221 addresses this problem
of seller reluctance to provide a social security number by providing that no federal
withholding is required if the seller furnishes the Affidavit of Seller to a “qualified
substitute” rather than to the buyer or real estate agents and then the qualified substitute
furnishes a statement stating under penalty of perjury that the qualified substitute has the
affidavit, with the social security number, in its possession. A qualified substitute can be
any person responsible for closing the transaction, such as a title company or escrow
company, although the qualified substitute cannot be the seller’s agent. Sellers should be
more willing to provide their social security numbers using this alternative procedure,
since they know that this form will only be provided to the title or escrow company,
which entity probably already has the seller’s social security number. Note that if the
entity closing the transaction is the listing agent’s own DRE escrow company (as
opposed to an independent company), that escrow company is in effect the seller’s agent
and therefore cannot act as the qualified substitute in the transaction and the parties
would have to designate some other entity in the transaction, such as a title company, to
act as a qualified substitute.

10. Red Flags of Identity Theft

Effective June 1, 2008, under federal law all financial institutions and creditors, which
includes mortgage brokers, must develop a written program that identifies and detects the
relevant warning signs or “red flags” of identity theft. (These are known as “red flag
rules”). Examples might be unusual account activities or fraud alerts in a consumer
report. The program must also prescribe appropriate responses that would prevent and
investigate the crime. In other words, mortgage brokers will have to create some type of
written program that creates a policy for the office so that when, for example, an
employee of the mortgage broker notices a fraud alert in a client’s credit report the
mortgage broker would make sure the client was notified of this fact.

11. Solar Energy

Effective January 1, 2009, AB 1892 provides that any restriction in the governing
documents of a common interest subdivision that prohibits or restricts the installation of a
solar energy system is void and unenforceable. On the other hand, homeowners
associations (HOAs) may impose reasonable restrictions on solar energy systems which
do not increase the cost of the system more than twenty percent or which do not decrease
its efficiency or performance by more than twenty percent. In addition, HOAs will have
the ability to require an alternative system to be installed as long as the alternative system
is of comparable cost effiency and energy conservation benefits. Companion bill AB
2180 was also passed and it requires that an approval or denial of an application for the
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January 2009
Page 5

installation or use of a solar energy system must be approved or denied in writing within
60 days, unless the delay is the result of a reasonable request for additional information.

12. Abandoned Animals

Effective January 1, 2009, pursuant to AB 2949, any landlord or lender that discovers an
abandoned animal in or about real property that has recently been vacated upon or
immediately preceding the termination of a lease or foreclosure of the property must
immediately contact animal control officers for the purpose of retrieving the animal.
Animal control officers may then put a lien on the house in order to recover the cost of
retrieving the animal and the person in possession of the animal is subject to all local
laws that govern the proper care and treatment of these animals.

13. Manufactured Homes, Smoke Detectors and Water heaters

Effective January 1, 2009, pursuant to AB 2050, all used manufactured homes, used
mobilehomes and used multifamily manufactured homes that are sold must have a smoke
alarm in each bedroom. The seller must also sign a declaration regarding the presence of
working smoke alarms in these homes within 45 days prior to the transfer of title. If the
home was built after September 16, 2002 the smoke alarm must comply with federal
requirements, and if it was built before that date the smoke alarm must be installed by the
seller according to manufacturer specifications and the seller must provide the buyer with
the manufacturer’s information on the operation, testing and maintenance of the device.
In addition, all fuel-gas-burning water heater appliances installed in new manufactured
homes must be seismically braced, anchored or strapped, and any replacement fuel-gas-
burning water heater appliances in existing moblehomes or manufactured homes that are
offered for sale, rent or lease must be seismically braced, anchored or strapped. Finally,
within 45 days prior to the transfer of title transferors of such homes must sign a
declaration stating that each water heater appliance is secured as of that date.

14. Text messaging

SB 28 provides that anyone driving a vehicle in California may not send, write or read a
text message, instant message or email. On the other hand, drivers may enter a phone
number or name on a mobile or electronic device for the purpose making or receiving a
phone call.

15. Capital Gains Tax

Under existing federal laws taxpayers who live in a property as their primary residence
for two of the five years immediately preceding the sale may exclude for tax purposes up
to $500,000 of capital gains if they are married, or up to $250,000 if the taxpayer is
single. Effective January 1, 2009, this exclusion will be different for sales of principal
residences that were used as a second home or income property during any part of the
ownership period that occurred after January 1, 2009. For periods of ownership after that
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January 2009
Page 6

date the exclusion from capital gains recognition will be reduced by the amount of time
the property was not used as the principal residence. The gain from the sale will be
allocated between the periods when the property was used as a principal residence
(“qualified use”) and periods of non qualified use. The tax will be calculated by
multiplying the gain by a fraction where the top number is the period the property was
used as a principal residence and the lower number is the total period of ownership.
Thus, if a married couple filing jointly purchases a vacation property on January 2, 2009,
uses it as their vacation have for 6 years, moves into it for 2 years and sells it on January
2, 2017 for a gain of $600,000 they will be taxed as follows: They would multiply the
$600,000 gain by 2 years of qualified use divided by 8 total years of ownership.
($600,000 x 2 divided by 8 is $150,000) They may then exclude $150,000 of profit from
capital gains taxes but the balance of $450,000 would be taxed.

16. Virginia Graeme Baker Pool and Spa Safety Act

Effective December 19, 2008 all United States “public pools and spas” (which includes
pools and spas open to the public as well as those open exclusively to residents of
multiunit apartment buildings or multifamily residential areas such as apartment
complexes or homeowners associations) must be equipped with anti-entrapment drain
covers on every drain. The drain covers in question have to meet the standard established
by ANSI/ASME A112.19.8 – 2007. A list of cover manufacturers can be found at The law does not apply to swimming pools in
single family homes.

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