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Archive for the 'Important Information' Category

Changes Afoot in Property Tax Writeoffs

Beginning in the 2012 tax year, property owners will be required to break down payments into deductible and non-deductible portions when they file their tax returns with the Franchise Tax Board.  This could be a serious wakeup call for property owners, shaving thousands off their deductions.

The change has nothing to do with new taxes or laws, but rather a new Franchise Tax Board computer system being installed in 2012.  Until that system is up and running, the state’s tax department has no way of differentiating between deductible and non-deductible portions of property tax payments.  Since property owners typically deduct the total amount of their property tax bill – or the 1098 amount provided by their mortgage company – the state has lost millions each year.  Mello-Roos in Orange County alone accounts for more than $200 million of non-deductible amounts expected to be written off for tax year 2011.  That’s $200 million new taxable dollars the state expects to collect revenue on once the computers are up and running later this year.

The Franchise Tax Board has made the announcement early in the year so taxpayers can adjust withholdings for the year.  It also allows taxpayers and preparers the time they’ll need to ensure the proper documentation is at hand come time for filing for tax year 2012.

Finding a Better Mortgage – Tips for Success

 

Banking woes have brought the mortgage industry back down to Earth, but the new rules and requirements don’t mean that you can’t get a loan.  With a little work ahead of time, you can increase your own chance of qualifying for the best loan when you’re ready to buy.

• Ensure your credit report is 100% accurate.  Review each line item on your credit report to be sure that everything on there belongs to you.  (Mistakes happen, especially if you have a common name.)  Ensure that your payment record is accurately reflected.  If you find any discrepancies, contact individual creditors to request corrections.  Once the creditor has corrected any error(s), re-check your credit report to determine if your record has been updated accurately.
• Credit maintenance.  Cleaning up your credit BEFORE applying will help ensure the lowest rates.  By making timely payments, paying off any collections, and paying down credit card balances, you increase your credit score.  It also shows potential creditors that you’re being responsible with your obligations and keeping debt levels low.
• Being upfront.  If you’ve had credit issues in the past, trying to cover them up will only hurt you.  Be straight forward on your source(s) of income, and don’t try to hide assets.  Omissions like these can only delay your application, and may jeopardize your chances of securing credit at all.
• Documentation accuracy.  Review your paystubs, investment and bank statements to ensure information on them are accurate.  If the amounts, names, and addresses, are incorrect, submit corrections ahead of time.  If you’re putting a down payment on the property, be prepared to provide documentation on the source of the funds.
• Review your Good Faith estimates.  Know all the fine print of the loan(s).  While paying the lowest APR is what we all aspire for, focusing solely on the APR can mask other negative terms buried in the fine print (e.g. origination fees and/prepayment penalties).

Before you go to the bank seeking a loan, a little attention to your finances can go a long way.  While some of these steps may be time-consuming, they can help you get the best deal possible.

Tax Credits For Making Your Home Energy Efficient

 

As winter closes in, the chill that you feel in the air could very well turn into cold hard cash in your pocket! On December 31, 2011, federal tax credits for energy efficiency are set to expire. So, as you buy those last minute gifts and sip on eggnog, why not explore opportunities to improve the energy efficiency of your home? Not only will you see some dollars on April 15th (up to a maximum of $500), but these upgrades promise to save you money for years to come:

 

1. Windows: By replacing drafty, single-pane windows with models that
insulate better against the elements, you can save up to $200 on your taxes.
2. Insulation: Whether it’s attic or wall insulation, weather stripping for
your doors or windows, or expanding foam to fill voids, up to 10% of the
cost can be reimbursed by way of tax credits.
3. Doors: Up to a 10% tax savings.
4. Heating & cooling systems: Tax credit of up to $300.
5. Main air circulating fans: Up to $50 worth of tax credits are available.

Before you tick away the final moments of 2011, check with your tax advisor and visit Alliance to Save Energy’s website for program requirements and suggestions: http://www.ase.org. Who knows: by improving your home’s efficiency, you might also find a few extra dollars to finance this year’s festivities!

Studies Show Energy-Efficient Homes Pay Off

Energy-efficiency ratings have started finding their way into listings for residential properties.  A recent survey conducted by The Earth Advantage Institute, a non-profit group in Portland, OR, found that Energy Star or LEED (Leadership in Energy and Environmental Design) certifications increase the sale price of a home.  EAI states that new homes certified for sustainability and energy efficiency sell for 8% more, on average, than their non-certified counterparts.  The news is better for existing construction, where the same certification can add a premium of about 30% to the home.

In response to the trend, new training programs are finding their way into the banking and appraisal industries.  The institutions have found it necessary to teach officers how to acknowledge the benefits of energy efficient designs and how to translate them into lending and appraisal practices.  Banks are starting to realize that, when a borrower pays less for heating and electricity in an energy-efficient home, their ability to pay (and thus, credit-worthiness) increases, making them less risk for the underwriting bank.

Sales price isn’t the only place energy efficiency pays.  In the Portland, OR, market, a recent review of listings showed that energy-efficient homes spent 18 days less than comparable non-certified properties on the real estate market.

Understanding Net Operating Income (NOI)

Net Operating Income is one of the most important components of financial analysis for commercial real estate investors. A few months ago we discussed another important financial index, CAP Rates, which are determined directly from the NOI.

What is the NOI?

The NOI is calculated as follows:

NOI = GOI – Expenses, where GOI is the Gross Operating Income of the commercial real estate asset. Expenses include property taxes, insurance, maintenance, utilities, capital reserves, management fees and incidental expenses. NOI is analogous to a simple profit calculation for a business.

Of course, the commercial property’s Gross Operating Income (GOI) is needed for the NOI calculation. The GOI is determined by subtracting the vacancy rate reserve from the Scheduled Gross Income (SGI). This is done to adjust the SGI for tenant vacancies. The SGI is simply the total amount of rents scheduled to be collected annually.

An investor (buyer) typically obtains the necessary financial information by requesting it from the seller or the seller’s agent prior to executing a commercial real estate sale transaction.

It is customary that the sale transaction purchase contract sets forth the details by which the buyer and his agent verifies or determines a NOI and other important components of his financial analysis by his own due diligence work, while in escrow.

New Laws to Affect California Real Estate Agents and Brokers in 2012: Part Three

We hope that you’ve found our past few posts regarding the new California real estate laws and regulations helpful! This article marks the final laws that will be going into affect in the near future. The following laws relate to notice of sale, condo rentals, smoking bans, political signs and recycling. We wish you the very best in the final months of 2011!

Revising the Notice of Sale: Effective April 1, 2012, a notice of trustee’s sale for the non-judicial foreclosure of one-to-four residential units must contain specified notices to the owner on how to seek postponement of the trustee’s sale, and to potential bidders on the risks involved in bidding at trustee auctions.  Additionally, a lender or authorized agent must make a good faith effort to provide up-to-date information about sale dates and postponements to persons who want this information.  The lender must also provide updated information through the Internet, a telephone recording, or any other means that allows free access at any time.  Senate Bill 4.

Renting Out Condominiums: C.A.R. also successfully sponsored legislation protecting owners’ right to rent out their units in common interest developments.  Starting January 1, 2012, an owner in a common interest development is exempt from any prohibition in a governing document against renting or leasing the unit, unless that prohibition was in effect before the owner acquired title to his or her unit.  When renting out a unit, the owner must give the HOA verification of the owner’s acquisition date, and name and contact information of the prospective tenant.  An owner’s right to rent under this law does not terminate for certain transfers of title, including, but not limited to, probate, spousal, parent-to-child, adding a joint tenant, and other transfers exempt from property tax reassessment.  For sales transactions, the required HOA disclosures must include a statement describing any prohibition in the governing documents against renting or leasing.  This law does not apply to rental prohibitions in effect before 2012.  Senate Bill 150.

Tenants Smoking Ban: Beginning January 1, 2012, a residential landlord can prohibit the smoking of cigarettes and other tobacco products on the property, including any dwelling unit, building, other interior or exterior area, or the premises on which the property is located.  For new tenants on or after January 1, 2012, the areas where smoking is prohibited must be stated in the lease or rental agreement.  For preexisting tenants before 2012, a new provision prohibiting smoking is a change in the terms of tenancy that requires adequate written notice, depending on whether the tenancy is month-to-month or for a fixed term.  Senate Bill 332.

Tenants Displaying Political Signs: Effective January 1, 2012, a residential tenant can generally display political signs related to elections, legislative votes, initiatives, and other political matters as specified, but the landlord can make reasonable restrictions as to location, size, and duration of display.  In a single-family dwelling, a tenant’s political signs can be displayed from the yard, window, door, balcony, or outside wall of the leased premises.  In a multifamily dwelling, a tenant’s political signs can be posted in the window or door of the leased premises.  A landlord can restrict the size of a political sign to six square feet.  A landlord can also prohibit a tenant from displaying political signs that violate local, state or federal law, or a lawful provision in an HOA’s governing documents.  A tenant must remove political signs in compliance with time limits set by local ordinance, or absent such time limits, the landlord can reasonably restrict the posting of a sign to 90 days before an election or vote, and its removal within 15 days after the election or vote.  Senate Bill 337.

Tenants Recycling Rights: Commencing July 1, 2012, a multifamily residential dwelling of five or more units (or a multifamily residential dwelling or business that generates more than four cubic yards per week of commercial solid waste as defined) must arrange for recycling services.  The intent of this law is to address the challenges local governments are facing in reducing solid waste disposal in multifamily properties.  The required recycling services are to be consistent with state or local laws, to the extent that these services are offered and reasonably available from a local service provider.  The property owner of a multifamily residential dwelling may require tenants to source separate their recyclable materials to aid in compliance with this law.  Assembly Bill 341.

New Laws to Affect California Real Estate Agents and Brokers in 2012: Part Two

Last week we posted the first five news laws that were announced by the California Association of Realtors. This week we wanted to share with you the next five on the list. These new laws pertain to a plethora of topics, including citations, escrows, tax issues, appraisals, and small claims. Stay tuned, as we will be sharing the remaining laws next week!

DRE Issuing Citations and Fines: Starting January 1, 2012, the DRE can issue a citation and fine up to $2,500 if, upon investigation, it has cause to believe that a licensee has violated the DRE rules, or a unlicensed person has engaged in licensed activities.  The person cited can request a hearing within 30 days from receipt of the citation.  The citation and fine will be in lieu of DRE disciplinary action for the offense cited, and the citation will not be reported as discipline.  However, failure to comply with the terms of the citation or pay the fine within a reasonable time specified by the DRE shall result in disciplinary action and non-renewal of license.  The DRE may also apply to a superior court for a judgment in the amount of the fine and an order compelling compliance.  All administrative fines collected will be deposited into the Real Estate Recovery Fund, which has, under Senate Bill 706, been renamed the Consumer Recovery Account.  Additionally under this law, if the DRE delays the renewal of a license due to a pending disciplinary action, the license will not expire until the results of the disciplinary action are final or the license is voluntarily surrendered, whichever occurs first.  This law also gives the DRE the authority to make public information confirming the fact of certain investigations or proceedings regarding a licensee, and to apply for a court order to enforce a subpoena if a licensee has refused to obey.  Senate Bill 53.

Reporting Broker-Owned Escrows and Securities Qualification Exemptions: Starting July 1, 2012, a broker who conducts escrow activities for five or more transactions in a calendar year under the broker exemption from the Escrow Law, or whose escrow activities are $1 million or more in a calendar year, must file with the DRE an annual report of the number of escrows and dollar volume.  The report must be filed within 60 days after the end of a calendar year in which the threshold is met.  A failure to submit the report will be penalized at $50 per day for the first 30 days and $100 per day thereafter, up to $10,000.  A broker who fails to pay the penalty may be subject to license suspension or revocation.  All penalties collected will be deposited into the Consumer Recovery Account under the Real Estate Recovery Program.  Effective January 1, 2012, this law also requires a broker who files certain information with the DRE for an exemption from securities qualification to submit a copy of that information to any investor who gives funds to the broker in connection with a transaction involving the sale of a series of notes (or undivided interests in a note) secured by real property under section 10237 of the California Business and Professions Code.  Senate Bill 53.

DRE Suspending Largest Tax Delinquents: Commencing January 1, 2012, both the State Board of Equalization and the Franchise Tax Board must periodically make public a list of the 500 persons with the largest tax delinquencies in excess of $100,000.  The lists must include, among other things, each taxpayer’s occupational or professional license numbers.  The DRE and other state governmental licensing entities (with certain exceptions) must suspend and refuse to issue or renew an occupational or professional license for anyone on either tax delinquency list.  Assembly Bill 1424.

Agents Handling Appraisal Issues: Beginning January 1, 2012, a licensee cannot knowingly or intentionally misrepresent the value of real property.  Furthermore, a licensee who offers or provides an opinion of value of residential real property that is used as the basis for originating a mortgage loan cannot have any direct or indirect interest in the property or transaction as defined under Regulation Z (at 12 C.F.R. section 226.42(d)).  A licensee or other interested party is also prohibited from using coercion, extortion, bribery, intimidation, compensation, or instruction to improperly influence a person preparing an appraisal or valuation for a real estate transaction.  Senate Bill 6.

Increasing Small Claims to $10,000: Commencing January 1, 2012, the small claims court jurisdiction will generally increase from $7,500 to $10,000 for an action brought by a natural person.  For a claim of bodily injury from a car accident, the increase to $10,000 will not occur until 2015.  The dollar limit in small claims court for an action brought by a corporation or other entity will remain at $5,000.  Senate Bill 221.

New Laws to Affect California Real Estate Agents and Brokers in 2012: Part One

As 2011 comes to a close, it is no surprise that there are over a dozen new laws that will affect both real estate agents and brokers. To assist you in understanding these new regulations and laws, we will be posting them over the next few weeks in a three part series.

1. Sellers Disclosing Water-Conserving Plumbing Fixtures: C.A.R. successfully sponsored a new law, effective January 1, 2012, revising the Transfer Disclosure Statement (TDS) to include a checkbox in Section A for the seller to disclose whether the property has water-conserving plumbing fixtures.  The revised TDS also clarifies at the end of Section B that, by January 1, 2017, a single-family residence built on or before January 1, 1994 must generally be equipped with water-conserving plumbing fixtures.  If, however, that single-family home is altered or improved on or after January 1, 2014, the water-conserving plumbing fixtures must be a condition of final permit approval.  Water-conserving plumbing fixtures are low-flow toilets, showerheads, and faucets under section 1101.3 of the California Civil Code.  C.A.R. intends to release a revised TDS form in November 2011 to comply with this law. Senate Bill 837. Read Full Text

2. NHD Companies Disclosing Mining Operations: Starting January 1, 2012, a company preparing a natural hazard disclosure (NHD) statement for a prospective buyer, as required for certain transactions, must also disclose whether the property is located within one mile of a mining operation, according to map coordinate data from the Office of Mine Reclamation.  If a property is within one mile, the NHD company must give a specified notice that such mining operations may cause inconveniences.  Senate Bill 110. Read Full Text 

3. No Fee Bundling for HOA Disclosures: Beginning January 1, 2012, another C.A.R.-sponsored bill requires a homeowner’s association (HOA) to, upon written request, give an estimate of the fee for providing a prospective buyer with the governing documents of the common interest development and other required HOA disclosures.  The fee must be reasonable based upon the HOA’s actual cost for procuring, preparing, reproducing, and delivering the HOA documents.  If the fee is paid, the HOA cannot withhold the required HOA disclosures for any reason.  Moreover, the HOA cannot bundle the fee for providing required HOA disclosures with any other fees, fines, or assessments.  This law will prevent an HOA’s third-party document preparation company from bundling together both mandatory and non-mandatory HOA documents, and charging a higher fee for providing all the documents.  The HOA is also prohibited from charging any additional fees for electronic delivery of HOA documents, which must be available to a requesting party if the HOA maintains the documents electronically.  Additionally, at a buyer’s request, the HOA must provide 12 months of approved minutes of the association’s board of directors meetings (excluding executive sessions).  Delivery of the required HOA documents must be accompanied by a cover sheet itemizing the documents required by law and those provided.  In November 2011, we intend to release a revised C.A.R. standard form Homeowner Association Information Request that complies with this requirement.  Assembly Bill 771. Read Full Text

4. Brokers Designating Managers: Under another law that C.A.R. sponsored, effective July 1, 2012, an employing broker may appoint a licensee as a manager to supervise the licensed activities, clerical staff, and day-to-day operations of a branch office or division.  An appointed manager who fails to properly supervise licensed activities will be subject to disciplinary action by the California Department of Real Estate (DRE).  Appointing a manager, however, does not limit the employing broker’s supervisory responsibilities.  The appointment of a manager must be in a written agreement in which the manager accepts the delegated responsibility.  The employing broker must notify the DRE when a manager has been appointed or terminated.  A licensee cannot be an appointed manager if the licensee holds a restricted license, is or has been subject to a debarment order, or is a salesperson with less than two years of full-time real estate experience within the last five years.  Senate Bill 510. Read Full Text 

5. Strengthening DRE Enforcement: Effective January 1, 2012, the DRE will have greater disciplinary authority to achieve its highest priority of protecting the public.  A licensee will be required to report to the DRE within 30 days of any of the following: (1) disciplinary action taken by another licensing entity in California or another state, or by a federal governmental agency; (2) an indictment or information charging a felony against the licensee; or (3) a conviction of a felony or misdemeanor, including a plea of guilty or no contest.  Failure to comply with this reporting requirement will be cause for discipline.  The DRE’s broader disciplinary authority will also include, among other things, the ability to automatically suspend the license of anyone incarcerated after a felony conviction.  For disciplinary actions, the DRE can conclusively presume without a hearing that a licensee’s conviction of murder, rape, lewd and lascivious acts, or a violation of dangerous drugs or controlled substances laws is substantially related to the licensee’s qualifications, functions, or duties.  The DRE will also be able to enter into a pre-prosecution settlement with a licensee or applicant instead of issuing an accusation or statement of issues, but the settlement shall be considered discipline.  Additionally, the DRE can request that a disciplinary order requires the disciplined licensee to pay reasonable investigation and prosecution costs.  Failure to pay can result in non-renewal of license.  The DRE can also require that a restricted licensee pays the costs for monitoring the licensee and monetary restitution to any person who sustained damages caused by the licensee’s misconduct.  Again, failure to pay can result in non-renewal of license.  Senate Bill 706. Read Full Text

*Information provided by the California Association of REALTORS.  The full text of the bills can be found at www.leginfo.ca.gov

The Ins and Outs of Security Deposit Refunds

According to the California Department of Consumer Affairs, the biggest disagreement between landlords and tenants come after the tenant vacates the property, and it is often centered on the refund of the security deposit.  Knowing what the law will and won’t allow will go a long way to help you and your tenant avoid any misunderstandings at the end of the lease.

As outlined in California Civil Code 1950.5, landlords are allowed to use a tenant’s security deposit for one of four reasons:

1. Unpaid rent.
2. Cleaning – but only to return the unit to the condition the property was in on move-in.
3. Repair of damages caused by the tenant or the tenant’s guests beyond normal wear and tear.
4. And for restoration or replacement of furniture, furnishings, or other items (e.g. keys) beyond normal wear and tear (but only if the lease or rental agreement specifically stipulates).

Furthermore, the landlord is allowed up to 21 calendar days after the tenant’s departure to refund the tenant’s security deposit or to provide an itemized list of deductions from the original deposit amount, accompanied by a refund for what remains.  If deductions have been made from the tenant’s deposit, the law requires that the landlord provide copies of receipts (or good-faith estimates) for repairs or cleaning needed to bring the rental property back to “original” move-in condition.  Receipts must describe work performed, time spent, and hourly rate (it must be reasonable).  If estimates were provided initially, within 14 calendar days, a final statement should be provided to the tenant, detailing final costs, accompanied by a check for the remainder of the security deposit.

If a former tenant disputes the deduction(s), the best thing for the landlord to do is to objectively and expeditiously review the facts and reply.  Oftentimes, an open dialogue will help both parties avoid unnecessary stress and anxiety while also allowing them to resolve any differences quickly.

For more information about this and other landlord/tenant subjects, visit the California Department of Consumer Affairs website at http://www.dca.ca.gov.

Avoid the Pitfalls of Refinancing

Mortgage rates remain at a historic low.  If you haven’t refinanced in a while, now just may be the time!  Before you jump into the pool with both feet, make sure you consider the following:

• Know your options.  Comparing quotes from at least three different lenders can save you hundreds, if not thousands of dollars.  You should also check with your urrent servicer; they may not require as much documentation and could keep your records simpler come tax time.
• Know the TRUE cost.  Not all loan companies and programs are alike.  They may advertise an “amazing” rate, but know the fine print (the APR is the most telling). Savings can quickly be eaten up by fees for appraisals, closing, and other “junk.” Don’t forget any pre-payment penalties on your existing mortgage(s).
• Know your goals.  Short-term and long-term.  If you plan to sell the house in three to five years, or turn it into a rental property, knowing that ahead of time can help you decide the benefits and drawbacks of one program or company versus others.
•  Know your credit.  Credit scores are more important than ever before.  A lender can check your credit right before closing.  Don’t do anything to jeopardize the results:   keep your bills current, don’t shift money, and don’t take out any new lines of credit. Any sudden negative change in your credit could affect your rate right at closing – or ead the lender to pull the loan completely.    

Saving money on your mortgage payment every month is always a plus – just make sure you know everything about refinancing before it costs you more than you bargained for!