Source: https://fehlmanlaw.com/real-estate-law-tips/page/2/
Timestamp: 2020-07-08 12:51:22
Document Index: 53019911

Matched Legal Cases: ['§5605', '§5300', '§5300', '§5605', '§5605', '§5658', '§5960', '§10132']

Real Estate Law Tips | | LAW OFFICE OF ROD E. FEHLMAN | Page 2
HOME OWNER ASSOCIATION – RULES FOR INCREASING DUES
“Regular” assessments are “monthly dues” used for day-to-day expenses and reserves for repair/replacement of major components (i.e. roof, parking lot and other common area improvements).
“Special” assessment are for one-time costs to repair/replace major components due to either an unanticipated loss (fire, flood or casualty) or underfunded reserve for a major component.
1. “Regular” Assessment Increases Exceeding 20% Require Homeowner Approval.
Monthly Dues cannot be increased without approval of the Board for the Association. See Civil Code §5605.
The Board cannot increase fees without first complying with requirements of Civil Code §5300, which are as follows:
– provide a statement showing annual estimated revenue and expenses;
–	provide a summary of the reserve funding plan adopted by the board;
– provide a statement stating whether they are deferring the repair/replacement of any
major components and justification for the deferral;
–	provide a statement stating whether a special assessment is anticipated to restore, replace or repair any major components;
–	a general statement showing the procedure used to calculate and establish reserves for future replacement or repair of any major components.
If the Board complies with the requirements of Civil Code §5300, then they can only increase monthly dues by 20% or less. If the Board fails to provide statements and summaries as listed above, then the assessment is improper and can be challenged by the homeowner.
The Board cannot increase monthly dues by more than 20% without (1) approval of a majority of the homeowners and (2) a regular membership meeting. Civil Code §5605(b).
2.	“Special” Assessment Exceeding 5% of the Annual Budget Require Homeowner Approval.
The Board can impose “small” special assessments without Homeowner Approval. The Board can impose payment schedules without Homeowner Approval. A “small” assessment is defined as an assessment less than 5% of the total annual budget for the HOA.
The Board cannot assess a special assessment of 5% or more of the total annual budget without (1) approval of a majority of the homeowners and (2) a regular membership meeting. Civil Code §5605(b).
Additionally, the Board must notify each homeowner of a new or increased special assessment (1) by certified mail at least (2) 30 days before the assessment is due.
3.	Homeowners can Challenge “Regular” and “Special” Assessments.
Disputes $10,000 or Less.
Go to small claims court for any dispute in the amount of $10,000 or less. Civil Code §5658 allows a homeowner to (1) pay a disputed assessment “under protest” and (2) challenge the disputed assessment in small claims court.
This means that a homeowner can challenge any regular assessment, special assessment, fine, penalty, late fee or collection cost in small claims court. However, remember that you must first pay the disputed amount or the HOA can continue to assess fees, interest and penalties.
Disputes Over $10,000.
Do not rush to file a lawsuit against your HOA because the law allows the HOA to recover all attorney fees and costs from you if you lose. Instead follow the following three step dispute resolution procedure.
1.	REQUEST FOR INTERNAL DISPUTE RESOLUTION PROCEDURES. Send a written request to HOA for a copy of the Internal Dispute Resolution (“IDR”) procedures as required by law. Give the HOA a 15 day deadline for response.
2.	REQUEST FOR MEET AND CONFER. If no IDR, then send written demand for Meet & Confer to the HOA. The written demand must state the nature of your dispute in reasonable detail. HOA is required to participate in a Meet & Confer by appointing a director to meet with you personally within a “reasonable” time after demand is made. Give the HOA a 30 day deadline for response.
3.	REQUEST FOR RESOLUTION. If the dispute is not resolved by Meet & Confer, then send a written Request for Resolution demanding Mediation and/or Arbitration (i.e. Alternative Dispute Resolution also known as “ADR”). HOA is required to respond in writing within 30 days. Each party to ADR is responsible for its own costs. You must have an attorney to participate in ADR.
Neither party is required to participate in ADR, but courts often deny attorney fees to the HOA if ADR is refused (see Civil Code §5960). This is a great strategy to control your potential liability for HOA attorney fees.
It has been my experience that once the HOA receives written notices for IDR, Meet and
Confer and Mediation and/or Arbitration, they are more likely to come to the table and resolve the dispute.
Keep in mind that both the CC&R’s and California law were drafted for the HOA, not the homeowner, and generally favor the HOA at every turn.
Foreign Investment in Real Property Tax Act “FIRPTA”
FOREIGN SELLERS – BUYERS OWE THE IRS TAX
Congress enacted the Foreign Investment in Real Property Tax Act (“FIRPTA”) in 1980.
It is a little known IRS rule that buyer’s owe the seller’s income and/or capital gain tax when purchasing California property from a “Non-Resident Alien.”
For example, assume that you are purchasing a single family residence for $1,000,000 for investment purposes from a Non-Resident Alien seller living in China. The IRS requires you, as buyer, to remit 15% of the gross sales price to IRS at close of escrow.
This means that you, as buyer, must instruct escrow to pay IRS $150,000 of seller’s proceeds (15% x $1,000,000) to the IRS. If you, as buyer, fail to instruct escrow to pay IRS $150,000 of seller’s proceeds at close, then IRS will look solely to you for payment if the seller fails to pay the tax.
Who is a “Non-Resident Alien?” A “Non-Resident Alien” is any non-citizen seller who does not pass the (1) green card test or (2) substantial presence test.
Green Card Test:	If a non-citizen has a current green card, then he is not a
“Non-Resident Alien.”
Substantial Presence Test: If the non-citizen has resided in the U.S. for 183 days during the last 3 years and resided in the U.S. for at least 31 days this year, then he is not a “Non-Resident Alien.”
All other sellers are subject to mandatory IRS withholding. Surprisingly, it is the buyer’s obligation to demand withholding of seller’s proceeds at close.
If buyer fails to withholding of seller’s proceeds at close, then the IRS will look to the buyer for payment. Incredible but true.
Exemptions for Withholding?
This IRS rule requiring buyers to withhold sellers’ tax is the general rule subject to only two exemptions.
Exception #1: The transaction is exempt from IRS withholding if buyer purchases the property as his/her primary residence. The primary residence exception only applies if buyer can prove that he/she occupied the residence 50% of the time during the 24 month period immediately after close of escrow.
Exception #2: The transaction is except from IRS withholding if seller completes a 1031 exchange when both of the following conditions are met:
1.	The Non-Resident Alien completes a simultaneous exchange (i.e. closes the 1031 on the same day as buyer’s purchase); and
2.	The Non-Resident Alien receives no cash at close.
In all other 1031 exchanges where seller does not close simultaneously, the buyer must withhold 15% of gross proceeds from seller’s proceeds.
If you represent a buyer, and the seller is a Non-Resident Alien (i.e. does not pass either the green card or substantial presence tests), then advise your buyer to consult CPA prior to close of escrow to determine the amount of tax to withhold from seller’s proceeds.
If you represent a Non-Resident Alien seller, then advise seller to consult with his CPA as he may qualify for a Withholding Certificate, which would allow him to avoid the mandatory withholding.
Sellers desiring to avoid the mandatory withholding must first complete the Application for Withholding Certificate which generally takes the IRS 90 days to either grant or deny. Your seller will certainly need a CPA for this process.
Although agents should never give legal or tax advice, it is important that agents are aware that buyers have this tax obligation.
CAN AGENT’S CORPORATION RECEIVE COMMISSION
I have received many recent calls from agents asking if the broker can pay their commission to their corporation or limited liability company (“LLC”).
Historically, a broker could not pay commission to the agent’s corporation or LLC. Business & Professions Code section 10137 required brokers to pay commission only to “licensed persons.”
Since agents cannot obtain a “corporate license,” and since BRE has never recognized an LLC as an entity that is eligible for a “corporate license,” brokers could only pay the agent directly.
Recent BRE opinions now allow an agent to be paid commission to his/her corporation or LLC. However, there are conditions that first must be respected for that payment to be deemed “lawful.”
1.	First, the corporation/limited liability company cannot do anything that requires a license or engage in any activities for which a license is required. In other words, the buyer and seller should deal with the agent individually without any reference to the corporation or LLC.
2.	Second, all transaction documents must be in the name of the agent and/or broker. The Purchase Agreement, Agency Disclosures, Escrow Documents and every other transaction document cannot have any reference to the unlicensed corporate or LLC entity. Once commission is received by the broker, then it can be paid to the agent’s corporation or LLC per a separate notarized instruction from the agent to the broker as set forth next-below.
3.	Third, the broker must receive a notarized instruction from the agent stating:
a.	that the agent is duly licensed and affiliated with the broker;
b.	that the agent owns all stock in the corporation (or membership interest in the LLC;
c.	that the corporation (or LLC) is properly registered with Secretary of State and in Good Standing;
d.	that the corporation (or LLC) is not licensed by BRE and will not engage in any licensed activities; and
e.	an instruction to the broker to pay all future commission directly to the agent’s corporation or LLC.
4.	Fourth, the commission cannot be paid from escrow and can only be paid from the broker after close of escrow.
If the agent satisfies these four simple conditions, then the broker can lawfully pay the agent’s commission to his/her corporation (or LLC) upon close of escrow.
The theory allowing payment to the corporation (or LLC) is that the agent has already earned his/her commission, and the notarized instruction to the broker operates as an “assignment” of commission to the agent’s entity.
Below is a sample Request to Pay Commission for the agent and broker to use which satisfies all three requirements.
This clarifies how an agent can receive commission to his/her corporation or LLC.
Request to Pay Commission to Salesperson’s Corporation or Limited Liability Compar1v
Agent/Broker Name (AGENT)
Corporation/LLC Name (CORP)
1.	I am a duly licensed real estate salesperson or broker affiliated with REeBroker Group.
2.	I am an owner, partner and/or stock holder of CORP.
3.	CORP is a legal entity authorized to do business in the State of California, is properly registered and in good standing.
4.	CORP is not licensed as a Real Estate Broker or Agent and will not engage in any activity that requires a real estate license.
5.	I request that all future commissions payable to me, earned in my capacity as a salesperson with REeBroker Group be paid to CORP.
Agent/Broker (
ADVERTISING DISCLOSURE RULES 2018
AGENT ADVERTISING DISCLOSURE RULES:
I have received many recent calls concerning Advertising Disclosure Rules, Team Names and Fictitious Business Names.
In 2016, California Association of Realtors® sponsored AB1650, which clarified advertising disclosure requirements. Those requirements became law in 2017 and are summarized as follows:
Definition. The term “Solicitation Material” means first point of contact material such as business cards, stationary, flyers, advertising (print, radio or internet) and signs.
Definition. The term “Responsible Broker Identity” means the company name registered with BRE (i.e. ACME Realty, Century Real Estate). Responsible Broker Identity means company name and not the broker’s name.
Agent Disclosures required for “Solicitation Materials”.
Agent’s name required
Agent’s license number required
.	Responsible Broker’s Identity must be on all “Solicitation Material.”
(Broker’s license number is optional but not required)
Agent-Owned DBA Disclosures required for “Solicitation Materials.”
Fictitious Business Name approved by BRE required
Responsible Broker’s Identity must be on all “Solicitation Material.”
Team Disclosures required for “Solicitation Materials.”
Sign Exceptions. Neither Agent’s name nor license number is required on “for sale,” “for lease,” “open house” and “directional” signs if there is either (1) Responsible Broker’s Identity on the sign or (2) there is no identification on the sign at all:
– Open House by ACME Realty or
– Open House (without reference to any licencee or broker) or
– Directional Arrow (without reference to any licencee or broker).
TEAM NAMES RULES:
“Team Names” are a professional identity used by a salesperson or broker associate. A “Team Name” is not considered a fictitious business name and does not need to be filed with the County or BRE if the following conditions are met:
1.	The name is used by two or more agents;
2.	The name includes (1) the surname of one of the agents and (2) is used in conjunction with the term “associates,” “group” or “team.” For example, the Jones & Smith Associates, the Jones Group or Jones Team; and
3.	The name does not include terms that imply that the team operates as an independent company. For example, you cannot use Jones Realty Group, Jones Real Estate Services or Jones Brokerage.
If these conditions are met, then the agent can use the Team Name without filing a Fictitious Business Name Statement with the County and without BRE approval.
FICTITIOUS BUSINESS NAME RULES:
All names that do not quality as a “Team Name” will need to be approved by BRE as a Fictitious Business Name (i.e. DBA) and must comply with the following rules:
1.	Agent must file an application with the County for a Fictitious Business Name and publish in a newspaper of general circulation as required by the County;
2.	Agent must send to BRE an application for a Fictitious Business Name signed by the supervising broker requesting BRE approval to use the name.
The agent cannot use the Fictitious Business Name until he/she has filed form RE-247 and has received written confirmation by the BRE approving the name. The BRE has discretion to either approve or disapprove any proposed name.
AVID Disclosures Newsletter
AVID (AGENT VISUAL INSPECTION DISCLOSURE) TIPS
1.	RESIDENTIAL PROPERTIES: The AVID is required for all residential properties consisting of 1-4 dwellings. If a Property is mixed use, such as a commercial property with a home in the back, then the AVID is required for the “Residential” portion only.
2.	INSPECTION OBLIGATION: An agent has a duty to conduct a reasonably competent “visual” inspection of each “Residential” property and disclose any “defects” that affect:
a.	Market value or
b.	Desirability.
Think “Red Flag”, which are conditions indicating a potential defect (see examples below).
3.	SCOPE OF INSPECTION: The agent’s “visual” inspection should include inspection of the following areas:
a.	INSIDE: inspect all rooms, guest houses and garages.
b.	OUTSIDE: inspect yard, fences, landscaping, missing tiles, stucco and driveways.
c.	NEIGHBORHOOD: inspect for nuisances, aircraft/train noise, smells.
a.	Eyes: Report what you see.
b.	Ears: Report what you hear.
c.	Nose: Report what you smell.
The inspection begins from the moment you pull up to the property.
4.	RED FLAGS: Defects that the agent is obligated to disclose are often referred to as Red Flags. Standard of care requires disclosure of anything that would bother you if you were the buyer. It is a good rule of thumb that if you are considering calling me, then the condition is obviously bothering you and you should disclose. The following are examples of AVID disclosures:
– leaks (active)	– interior/exterior stains	– teenage band on block
– missing roof tiles – abnormal smells inside/outside – noisy dogs next door
– low water pressure – interior/exterior strange smells – aircraft/train noise
– leaning walls	– overgrown landscaping	– any abnormalities
– concrete cracks (generally over 1/4″ wide).
– agent’s knowledge of prior insurance claim (5 years or newer).
5.	AVID: Agent Visual Inspection Disclosure – Required for all “Residential” transactions.
a.	Complete the entire form as to all rooms.
– If a room has nothing wrong, then state “NOTHING NOTED.”
b.	Only report your observations: only what you see, hear or smell.
– Mold: report “black substance.” Algae: report “green substance.”
c.	Do not use adjectives or make conclusions
– Do not say “small stain” or “insignificant crack” or “minimal leak.”
d.	Disclose INACCESSIBLE areas of the property.
– boxes in 3′ bedroom prevents inspection
– furniture against south wall in dining room prevents inspection
– large throw rug over wood floor in living room prevents inspection
– boxes in garage prevents inspection
– large painting on south wall in dining room prevents inspection.
e.	Make no representations about permits, zoning or code compliance.
f.	Avoid unverified factual representation.
6.	AMENDED DISCLOSURES: If seller discovers and/or discloses a defect after removal of buyer’s contingencies, then buyer has FIVE (5) DAYS to cancel based upon that late disclosure (See RPA 14B(3)).
Example. You represent a seller in a pending transaction with a 30 day escrow. Five days prior to close, you visit your seller at the property and see a black stain behind a large painting that seller just removed in preparation for close. You now must send an “amendment” to the AVID disclosing the new Red Flag condition. Buyer now has five extra days to cancel meaning that buyer can theoretically cancel on the closing date and get his/her deposit back.
7.	FIDUCIARY DUTIES: If your client expresses purchase criteria, then you owe a duty to (1) advise client in writing that seller’s information and disclosure could be wrong and (2) advise client in writing to confirm that information to him/herself is accurate prior to removing contingencies.
–	Salahutdin Case. client tells you they need at least 1 acre that can be subdivided. Even though the MILS and seller state that the property is over 1 acre, you need to advise client that (1) seller’s information could be wrong and (2) to confirm the information with the city or county prior to removing contingencies.
–	Fields Case. if buyer asks you questions about title report (easements) and whether or not the location of easement prevent him from building a pool in the backyard, you need to advise buyer in writing to confirm the existence and/or location of easements with the title officer him/herself prior to removing contingencies.
Follow these relatively simple guidelines and you will minimize your exposure.
PERSONAL ASSISTANTS – DO’S & DON’TS
Many agents hire personal assistants to help them with secretarial and/or organizational tasks. If the personal assistant is not licensed by the BRE, then that assistant cannot do anything that requires a California salesperson license. Business & Professions Code §10132
1.	Don’t hold open houses
2.	Don’t negotiate terms of any transaction
3.	Don’t draft, explain or interpret CAR FORMS for buyers or sellers
4.	Don’t solicit buyers or sellers for the agent/broker
5.	Don’t prospect for listings, sale, lease or exchange of real property
6.	Don’t ask or answer questions from any buyer or seller concerning any property such as asking price, number of bedrooms, number bathrooms or other qualities of the property.
1.	Schedule appointments for the agent/broker
2.	Call buyers or sellers to schedule showings, inspections and closings
3.	Compile listing packages
4.	Deliver documents such as Offers, Counter Offers and Disclosures
5.	Create flyers and brochures, and place advertising for the agent/broker
6.	Take pictures for the agent/broker
7.	Map properties for showing to buyers
8.	Calendar important dates: contingencies, inspections, loan approval, closing
9.	Order and/or maintain For Sale, Open House, Pending and Sold signs
10.	Coordinate closing.