Q: CREDIT TO BUYER: (Louri Groves)
What are the legal and tax implications to the buyer if the selling agent rebates his/her commission to the buyer?
(Who pays the taxes on that?)
What is required:
1.) Must be approved by ALL parties involved (seller, lender, brokers/agents)?
2.) Must appear on HUD?
3.) Should be on purchase agreement?
A:
As for the taxes, you/agent will receive 1099 for the entire commission. You need to discuss with your accountant regarding your ability to write the client credit off as an expense and if your client then incurs the tax consequence. The credit must be reflected on the HUD, however there is no requirement that all parties approve of the client’s credit, UNLESS of course the credit is given to a seller in a short sale.

Q: SETBACKS (Juanita Tiu)
A couple planning to buy a short sale in Long beach. When the property was built,the setbacks around the detached garage had to be 3 feet. One neighbor has built a block wall that is in the setback. The other neighbor stores trash cans and parks cars in the setback.The buyers want to be able to protect the setbacks. Have the neighbors got a use easement for the land that is part of the setback? Or can the buyers force the neighbors to stop using the setback?
A:
We would need to know if the “setbacks” are on the subject property. If the use of the setbacks by the neighbors encraoch on the subject property, and the title report is devoid of information identifying easments on the property, then the new owner may have an action against neighbors. However, the buyer should be instructed in the TDS to go to the City to determine the actual use restrictions for the setbacks. Typically setback restrictions apply to structures (like the wall in your case) not vehicles or trashcans. If what your asking is: Do the neighbors have a “prescriptive easment” on the subject property, then the buyer would need to ascertain several facts. The legal test to acquire a prescriptive easement is that the use must be (a) open, not secret, (b) notorious, clearly observable, (c) hostile, without the landowner’s consent and (c) continuous, without interruption for 5 years.

Q: Holmes vs Summer (Diane Nesley and Cathleen Prior)
Is the Short Sale Addendum adequate disclosure? Regarding the recent Holmes v Summer decision from CA Appellate Court: I have a duty, as a listing agent, to disclose to a buyer that the sale is a short sale and the seller may not be able to bring sufficient funds to the table to make up any difference and/or the short sale lender may not approve an offer that would realize less than amounts owed to them. In other words, this transaction may not close.
A:
Yes, the Short Sale Addendum is adequate disclosure. Additionally, the MLS should reflect that the purchase requires lender approval. Neither the SSA nor the MLS approval language were used in the Holmes case. As such, that buyer was not aware until seller tried to cancel the RPA. Listing Agent should require any buyer submitting an offer to also submit to the seller the SSA. The SSA has all disclosures necessary.

Q: Rentals and Smoke Detectors. (Julia Bruns)
What are the new laws regarding carbon monixide detectors and smoke detectors for rentals?
A:
Every owner of a “dwelling unit intended for human occupancy” must install an approved carbon monoxide device in each existing dwelling unit having a fossil fuel burning heater or appliance, fireplace, or an attached garage. The applicable time periods are as follows: (1) For all existing single-family dwelling units on or before July 1, 2011. (2) For all other existing dwelling units on or before Jan. 1, 2013. All landlords of dwelling units must install carbon monoxide detectors. The law gives a landlord authority to enter the dwelling unit for the purpose of installing, repairing, testing, and maintaining carbon monoxide devices “pursuant to the authority and requirements of Section 1954 of the Civil Code [entry by landlord].”
The carbon monoxide device must be operable at the time that a tenant takes possession. However, the tenant has the responsibility of notifying the owner or owner’s agent if the tenant becomes aware of an inoperable or deficient carbon monoxide device.

Q: FHA REPAIRS (Tom Ash)
During a current escrow the Buyer’s agent sent a request to switch from a Conventional loan to FHA because it would save the Buyer a ton of money.
The Buyer’s agent had an FHA appraiser visit the property (without our knowledge) and compile a “to do” list of what the property needed to go FHA that included painting the house, some drainage installation, removal of an exterior hillside staircase and about 6 or 7 other less significant items. The Buyer at Buyer’s expense was to do all the work.
After talking to my Seller, In the spirit of cooperation and good will I did compose a list of pre agreement requirements asking for release of money to Seller, an agreement w/ hold harmless clause, confirmation of insurance coverage, release of all contingencies and assurance that Buyer was prepared to do repairs and within reason, close on time. Even so, I really didn’t feel that this was completely protecting my client.
If we entertain these requests, what protects a Seller from someone starting work and then bailing and leaving a mess for the Seller to clean up? Is there a set of minimum requirements Prudential would like to see before these switches are attempted?
A:
First of all the seller does not have to comply with the FHA requirements as that was not contemplated when the RPA was entered into. However, if the seller in the above hypothetical wanted to permit FHA financing, and permit the buyer to perform work prior to COE, the Listing agent should disclose to the seller that Prudential/agent does not recommend buyer’s entry on to property to make repairs prior to the COE as there are risks inherent in permitting such work and the seller needs to be advised in writing of those risks identified above. Having the buyer release the cost of repair to the seller as payment for repairs (not non-refundable deposit) and then having the seller pay for repairs is the safest option for seller. As for an Agreement/Disclaimer to permit said repairs to be made pre COE, in addition to the items identified above, the seller should demand that repairs are to be completed by a licensed and bonded contractor in good standing and approved by the seller before work commences.