New Laws in 2014 Affecting California Real Estate Transactions

2014 saw the introduction of several new laws pertaining to real estate transactions. Below, you will find a sampling of some of those new laws:

Real Estate Transfer Disclosure Statement (“TDS”) Revised to Include Construction Defect Litigation

Effective July 1, 2014, the TDS has been revised to require disclosure of the seller’s knowledge of certain construction defect claims for newly constructed homes (less than 10 years old). As amended, the TDS will inquire as to whether a seller is aware of any claims or lawsuits involving construction defects threatening to or affecting the real property, including any pre-litigation claims of a construction defect, claims of breach of warranty, or claims for breach of an enhanced protection agreement.

Disciplinary Action for Broker Record Tampering

Starting January 1, 2014, the Bureau of Real Estate can suspend or revoke the license of any real estate salesperson, broker, or corporate brokerage, if the broker, salesperson, or any director, officer, employee, or agent of the corporation, knowingly destroys, alters, conceals, mutilates, or falsifies any of the books, papers, writings, documents, or tangible objects required to be maintained and provided upon notice, or sought in connection with an investigation, audit, or examination. Under existing law, a real estate broker must generally retain for 3 years copies of all documents executed or obtained by him in connection with any transactions involved licensed activities.

Consumer Protection Against Prepaid Rental Listing Services

Beginning on January 1, 2014, the California Bureau of Real Estate (BRE) is authorized to issue a citation to an unlicensed person for engaging in prepaid rental listing services without a prepaid rental listing service license or real estate broker license. As background, a prepaid rental listing service is generally a business that charges a fee for providing a prospective tenant with a list of available places for rent. Existing required content for a written contract that a prepaid rental listing service licensee must offer a prospective tenant before accepting a fee has been broadened to include the licensee’s license number as well as a specific statutory notice about refunds. An aggrieved person with a final judgment against a prepaid rental listing service licensee may apply to BRE for payment from the Consumer Recovery Account. Any payment from the Consumer Recovery Account will result in automatic suspension of the prepaid rental listing service licensee.

Franchise Tax Board Information Return for Out-of-State Acquisition in 1031 Exchange

For any 1031 exchange that occurs on or after January 1, 2014, a taxpayer acquiring a “like-kind” property located outside of California must file an information return with the Franchise Tax Board for that taxable year and every year thereafter in which the gain or loss from the exchange has not been recognized. If a taxpayer fails to file such information return and tax returns, the Franchise Tax Board may propose to assess the amount of tax, interest, and penalties due by estimating net income from any available information, including the amount of gain.

Adjoining Owners Equally Responsible for Shared Fences and Boundaries

Commencing January 1, 2014, adjoining landowners must share equally the responsibility for maintaining boundaries and monuments between them. Adjoining landowners are presumed to share an equal benefit from any fence dividing their properties, as well as equal costs for construction or maintenance, unless otherwise agreed in writing. This new law also provides specific procedural requirements for an owner who intends to incur costs for a division fence to notify the adjoining owner of the estimated costs and other information.

Smoke Detectors Specifications Changed

Starting on July 1, 2014, the State Fire Marshall will not approve a battery-operated smoke alarm unless it contains a non-replaceable, non-removable battery capable of powering the smoke alarm for at least 10 years. This rule was originally slated to take effect on January 1, 2014. Until July 1, 2015, an exception to this rule applies to smoke alarms ordered by, or in the inventory of, an owner, managing agent, contractor, wholesaler, or retailer on or before July 1, 2014. Furthermore, starting January 1, 2015, the State Fire Marshal will not approve a smoke alarm unless it does all of the following: (1) displays the date of manufacture on the device; (2) provides a place on the device to insert the date of installation; and (3) incorporate a hush feature.

Title Companies Protected for Good Faith Filing of Notice of Default or Sale

Except when acting as a trustee, a title insurance company is not liable for violating certain laws prohibiting the filing of a notice of default or notice of sale if the title company, while acting in good faith and in the normal course of business, records or causes to record a notice of default or notice of sale at the request of the trustee, substituted trustee, or beneficiary. This protection applies to the following laws: (1) prohibition against the filing of a notice of default until 30 days after the lender contacts a borrower to explore options of avoiding foreclosure; (2) prohibition against the filing of a notice of default or sale if a short sale is approved by all parties as specified; (3) prohibition against the filing of a notice of default or sale if the borrower has submitted a complete loan modification application as specified; and (4) injunctive relief for certain violations.

Literal Translation of “Notary Public” in Ads Prohibited

Effective October 5, 2013, any person who is not an attorney is guilty of the unauthorized practice of law for literally translating from English into another language any words that imply that the person is an attorney, including “notary public,” “notary,” “licensed,” “attorney,” or “lawyer” in any advertisement or other document. The literal translation of the phrase “notary public” into Spanish as “notario publico” or “notario” (which means in Spanish an attorney with special credentials, not a notary public) are explicitly prohibited by anyone other than an attorney. A person who violates this law may be held liable in a civil action brought by the State Bar for a penalty up to $1,000 per day for each violation. The civil penalty is in addition to any other remedies, including criminal prosecution for a misdemeanor punishable by one year imprisonment, plus a $1,000 fine.
Landlord Required to Provide Specific Utility Rate Schedules

Starting January 1, 2014, a master-meter customer of an apartment building, mobilehome park, or similar residential complex, must post in a conspicuous place the applicable specific current residential gas or electrical rate schedule as published by the serving utility, rather than the prevailing residential utilities rate schedule as previously required. Alternatively, the landlord as a master-meter customer may elect to post a website address for a tenant to access the schedule as long as the landlord also does the following: (1) state in the posting that an individual user may request a copy of the specific current residential gas or electrical rate schedule from the master-meter customer; and (2) provide the schedule upon request at no cost.

Protection of Victims of Human Trafficking as Tenants

Beginning January 1, 2014, a residential tenant can terminate a tenancy within 30 days by notifying the landlord that the tenant was a victim of human trafficking as defined. The tenant’s notice to terminate tenancy must generally include a copy of a police report or court order regarding the tenant or tenant’s household member. From January 1, 2014 to January 2016, however, a tenant may simply provide documentation from a qualified third party professional indicating that the tenant or household member is seeking assistance for physical or mental injuries resulting from the offense. This law also prohibits a landlord from terminating a tenancy, or failing to renew a tenancy, based on acts of human trafficking if documented by a police report or protective court order and the wrongdoer is not a tenant of the same dwelling unit. The landlord, however, may terminate the tenancy if, after invoking protection under this law, the tenant allows the wrongdoer named in the police report or protective order to visit the property, or the landlord reasonably believes that the wrongdoer poses a physical threat to other tenants or to the tenant’s right to quiet possession. Existing law already protects a tenant if the tenant or tenant’s household member is a victim of domestic violence, sexual assault, or elder or dependent adult abuse.

Enactment of Commercial and Industrial Common Interest Development Act

The Commercial and Industrial Common Interest Development Act has been enacted to, starting January 1, 2014, provide for the creation and regulation of commercial and industrial common interest developments. Many provisions of the new law are patterned after provisions in the Davis-Stirling Common Interest Development Act for residential properties, including association governance, operating rules, and property use and maintenance. However, various provisions of the Davis-Stirling Act are not part of the Commercial and Industrial Common Interest Development Act, including, among other things, sales disclosure requirements, board and member meetings, accounting, and dispute resolution.

Revised Billing Statement for HOA Documents and Other Changes

Commencing on January 1, 2014, existing law requiring a homeowners’ association (HOA) to use a statutory form for billing charges for HOA sales disclosures has been revised. The new law requires the form to be in at least 10-point type and include an itemization for “Rental Restrictions, if any.” Furthermore, existing law stating that, when an inconsistency exists, governing documents prevail over articles of incorporation, which in turn prevail over bylaws, and in turn prevail over operating rules, has been revised to apply when a conflict, not inconsistency, exists. Additionally, existing law requiring delivery of documents to an HOA by email, fax, other electronic means, or personal delivery if the HOA consents to any of those methods, has been extended to allow delivery by first-class mail, postage prepaid, registered or certified mail, express mail, or overnight delivery by an express service center, regardless of HOA consent.

If you have any questions about any real estate laws in California, please contact Robert Forouzandeh at Reicker, Pfau, Pyle & McRoy.

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