August 9th, 2011 at 11:41 pm
One of the most common misunderstandings I hear in our business relates to the required warranty given by a builder to the buyer of new construction. On many occasions, including in lawsuits filed against us, we hear that our agents promise a buyer that any problems with the home will be fixed by the builder because they are required to give a 10 year warranty on the home. Unfortunately, that statement is not true, and is instead a misunderstanding of the law in this area. In truth, the law works as follows: First, the California Civil Code provides for a mandatory ONE YEAR warranty on fit and finish items. That law includes a dispute resolution process which gives the builder the opportunity to make repairs before the buyer can file a lawsuit. It is set forth in Civil Code sections 895 through 945.5, which can be found on the CAR website. This warranty and dispute resolution process is incorporated into the CAR new construction agreements. The 10 year period, on the other hand, is not a warranty, but is instead a statute of limitations. It was passed to ensure that a builder would not be subject to claims for construction defects forever. As a result, Civil Code section 941 states that no action may be brought against a builder “more than 10 years after substantial completion of the improvement but no later than the date of recordation of a valid notice of completion.” So, the 10 statute is actually a protection for the builder, cutting off claims against it. It is not a protection for the buyer, and is clearly not a warranty. Therefore, please make sure you never represent to a buyer that they get a 10 year warranty for new construction. They either get the statutory 1 year warranty, or a more extensive warranty that would have to be set forth in their contract with the builder/seller.
As always, please let us know if you have any questions.
August 6th, 2011 at 11:40 pm
As you will recall, a few weeks ago we wrote about SB 458 (the statute eliminating deficiency rights in many deals) and described how this new law impacted short sales. Since that time, we have already seen one questionable practice which we wanted to address.
Specifically, and as you are undoubtedly aware, there are many short sales that were in the process of approval at the time SB 458 passed, but which have not yet actually closed. In many of those cases, the bank’s approval was conditioned upon the seller bringing in money to close the deal or signing a promissory note in the bank’s favor. Of course, in deals covered by SB 458, such additional contributions are not allowed. So, how should those deals be handled now? We are hearing from escrow that many agents are telling them to ignore the extra money or note requirement, and just close the deal without it. Our escrow officers are specifically being told that, since the law prohibits the collection of these monies, no discussion with the bank is necessary. Rather, we can just close and the bank will not be allowed to pursue the seller for any more money.
While this position may ultimately be right, please be aware that this is not how we should proceed. Rather, the bank should be contacted and a new approval letter and HUD should be received. We cannot ignore the lender and assume they will do the right thing. And, we cannot assume the bank knows the law and risk having a lawsuit, even a bad one, filed against our client. So contact the negotiator on your short sales and make sure they understand how SB 458 changes things for them. When you get a new approval and HUD with no extra money or note on it, you can proceed to close your escrow without any risk to your seller. Of course, that is always our goal.
As always, feel free to contact us with any questions you may have.
July 29th, 2011 at 11:39 pm
As you know, paragraph 3 of the RPA, titled “Finance Terms,” is one of the longest and most important in the entire contract. As a result, we will cover it over multiple posts, each one discussing some portion of the clause. Today, we will start with subsection A, “Initial Deposit.”
Of course, the main issue with the Initial Deposit relates to how it is being delivered to escrow. In previous versions of the RPA, the boilerplate stated that the deposit, in whatever amount was indicated, “has been given” to the buyer’s agent. As you will recall, that past tense language created issues for us since oftentimes we did not actually have a check at the time the offer was made. On more than one occasion, after a default by the buyer, the seller looked to us for the deposit money since the contract said we had received it when in fact we had not. In such a case, we often had to pay money to the seller since the language in the contract clearly constituted a misrepresentation.
As a result, the latest version of the RPA made a great change to the boilerplate. Now, in section 3(A)(1) of the contract, the default provision says that the “Buyer shall deliver deposit directly to Escrow Holder…” and then gives numerous choices for how that money will be delivered. In section 3(A)(2), we can check a box and represent that the check has been given to the buyer’s agent, like the old contract discussed above. Of course, if at all possible, we should always use the default provision and never accept a check. There are multiple reasons for this. First, as we discussed above, if you check the box in section (A)(2) and don’t actually receive the check, you could be responsible to the seller in the case of a default. Next, if we do take a check, we have to log it in correctly and make sure that the Trust Log, as a whole, is handled pursuant to DRE regulations. Again, as we have told you many times, when the DRE audits an office, the first thing they look at is the Trust Log and the first thing they try to pin on us is a mishandling of trust log funds. Obviously, if we never touch the check, we never have to log it in and therefore have nothing to worry about. As a result, do your best to never take a deposit check.
Finally, remember one other thing about this paragraph. If your contract defaults to the boilerplate, you need to follow up with escrow and make sure that they have actually received the deposit, especially if you represent the seller. We have had numerous instances where the contract calls for the deposit to go directly to escrow but it is never received. In the case of a default, the seller wants to know why his/her agent never checked to make sure the money was there and often looks to us for compensation. So don’t forgot about the deposit just because we don’t touch it. Follow up with escrow and make sure the buyer actually performs.
As always, please contact us with any questions you may have.
July 26th, 2011 at 11:38 pm
On July 12, Bank of America introduced its “Substitute Buyer” program for short sales. According to this new policy, agents can submit a backup offer to B of A if the original buyer has walked away from a short sale transaction. According to B of A, this means you will no longer need to initiate a new short sale for the next buyer. Rather, you will continue to work with the same transaction in equator and with the same short sale specialist. Remember, this policy only applies if you have a backup offer ready when the original buyer cancels. If there is no backup ready, you will need to market the property again and start from the beginning when a new offer is received.
If, on the other hand, you have a backup offer ready when the first buyer walks, you should notify your short sale specialist about the cancellation. According to the Policy, the specialist will then respond, asking if you have a back up. If the answer is yes, the short sale can proceed without having to repeat the short sale initiation steps. Instead, you will be directed to complete the following tasks within 14 days: 1) Complete the “listing data” task; 2) Provide the marketing description; 3) Review the marketing plan; and 4) Upload the offer. When that is done, you can proceed with the short sale from that point forward without starting anew. Of course, this is good news for B of A transactions and will hopefully be copied by other lenders very shortly.
As always, please feel free to contact us with any questions you may have.
July 15th, 2011 at 11:37 pm
With the increasing importance of the internet in our business, we have seen a corresponding increase in copyright issues and claims being made against our agents. The most common claim is made by the owner of a picture, such as Getty Images, against an agent website for using their photos without permission. Typically, our agent finds a community type picture (such as the Hollywood sign or Coronado Bay Bridge) and puts it on their website without paying for it or getting permission from the owner. Many companies are now protecting those assets aggressively, writing demand letters and seeking payment of a use fee, sometimes in the thousands of dollars. Frankly, those claims have merit, since under the law, the owner of a picture has the right to control its use. As a result, be very careful about the photos you use and make sure that (1) all pictures were taken by you or (2) your have permission to use them. Since the photographer of a picture is assumed to be its owner, using your own pictures solves this problem.
This issue also has implications for the photos you use for your property listings. As I said above, as a general rule, the photographer is the owner of the pictures she takes. As a result, if you want to protect the pictures of listings you upload to the internet, you need to make sure that the photographer you hire will assign its rights to you and the Company. By doing so, we can protect those pictures on the internet, and stop other agents from using them on sites like Craigslist or their own personal sites. Without those ownership rights, however, we would have no right to take any act to protect these pictures. To make this easier, we have reached agreements with our two preferred vendors, Visual Tours and Image Maker 360. If you use either of those vendors, our agreement will govern and all pictures taken for our listings will automatically be owned by us, thereby allowing us to protect them for you. However, if you use a third party photographer, you will not automatically have this protection. So, please either use one of the vendors above or make sure that your photographer will assign his/her rights to your listing pictures.
As always, please let us know if you have any questions.
