2021 Sees Significant Changes in Real Estate Legislation

Almost 30 bills affecting real estate law either are being considered or have passed over the the past year. Among them, a few important ones passed just in the last couple months. We’ve mentioned SB 10 before; that’s the one that allows some areas to be rezoned for up to 10 units. Other important bills passed in September and October are AB 948, SB 263, and AB 345.

AB 948 and SB 263 are similar, but aimed at different groups. Both require anti-bias training for real estate professionals. The difference is that AB 948 applies to appraisers, while SB 263 applies to agents and agent applicants. AB 948 also makes discrimination by appraisers by protected groups illegal, and SB 263 establishes 45-hour long renewal courses. SB 263 goes into effect January 2023. AB 345 makes accessory dwelling units (ADUs) more similar to individual properties. It allows them to be sold separately from the primary residence.

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More: https://journal.firsttuesday.us/legislative-gossip-page/

How the New Zoning Laws May Impact Your Neighborhood

Gov. Gavin Newsom recently signed two housing bills into law, SB 9 and SB 10. SB 9 modifies areas zoned for 1 unit to also allow duplexes. However, it isn’t without restrictions — it also limits the construction that would convert a single home into a duplex to homes that have not been rented out in the past 3 years, and only allows 25% of the external walls to be demolished if it is a conversion and not a new construction. SB 10 is aimed at helping local governments to streamline processes for allowing up to ten units on lots formerly zoned for SFRs, but only if the lot is over 8000 square feet.

One region in which these bills were highly contentious is Long Beach, which has 59,803 single-family lots. But the laws aren’t likely to change things as much as people think, especially SB 10. Only 4,609 are eligible for the provisions under SB 10, due to the lot size restriction. Moreover, the City of Long Beach is under no obligation to allow up to ten units at all — the bill merely streamlines the approval process, should they choose to. A significantly larger number of units could be affected by SB 9, but city officials expect that between 17000 and 28000 units would be ineligible due to the rental restrictions, and there’s no guarantee that the eligible units would be converted. In addition, ADUs are already allowed, and the biggest difference between an SFR-plus-ADU combination and a duplex is the size of the units.

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More: https://lbpost.com/news/the-governor-signed-2-controversial-housing-bills-heres-what-it-means-for-long-beach

FHFA Has Extended ‘First Look’ Period

The Federal Housing Finance Agency (FHFA) established the First Look Program back in 2009, aimed at promoting neighborhood stability by facilitating occupation of real estate owned (REO) properties by owners. The program created a special time period during which prospective owner occupants, public entities, and nonprofits would have exclusive rights to purchase properties owned by Fannie Mae or Freddie Mac, before investors would have access. Until now, this time period was 20 days. On September 1st, the FHFA extended this period to 30 days. They deemed this move essential during a period of low supply, to reduce the level of competition prospective owner occupants have to contend with.

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More: https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Extends-the-Enterprises-REO-First-Look-Period-to-30-Days.aspx

Bipartisan Infrastructure Bill In the Works

The US Senate has now passed a bipartisan bill aimed at improving infrastructure. The bill details budget investments for repairs, updating, new construction, and weatherproofing. Much of the money is aimed at roads and bridges, and various different budget plans all focus on clean environmental efforts, such as clean water, clean energy, and electric vehicle chargers. The bill doesn’t have many provisions that explicitly focus on housing, but improving infrastructure will have an indirect impact.

The most significant impact on the housing industry will be in job creation. While some of the positions that are being funded already exist, others don’t and will need to be created. This means more people will need to be hired. The slow recovery of the job market is the primary reason our recovery from the recession has been so drawn out. The infrastructure bill will hopefully not only establish a better infrastructure for the future, but also create more jobs now to speed up recovery. With a recovery of the job market, housing market stability will soon follow.

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More: https://journal.firsttuesday.us/how-the-infrastructure-bill-supports-housing/79580/ [Note: The article states that the House has yet to vote on the bill. In fact, the House voted on and passed the bill before the Senate voted.]

Proof of Fire Buffer Zone Required for Some California Homes

In response to increasing frequency of wildfires in California, the state wants to make sure residences are in compliance with fire safety law. Existing state law already requires what is called defensible space, which is a buffer zone between flammable plant material and any structure on the property. Now, sellers are going to be required to provide proof of compliance with this law if their property meets certain conditions. This applies if the property is a condominium, common interest development, or manufactured home, is zoned residential 1 through 4, or is located in a high or very high fire hazard severity zone.

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Are Homeownership Subsidies the Answer?

California is proposing a plan to start the “California Dream Fund,” which is intended to allow the state to subsidize purchases by first-time homebuyers without any tax increases. They hope to achieve this by allowing investors to use their money to subsidize the purchase, in exchange for an equivalent share of ownership. This will be limited to 45% to prevent the investors from owning a majority share.

The plan is still in the works, but there are already a few criticisms. Currently, there is no indication of who is liable if the property goes into default. Is it only the buyer? Do the investors have a stake, since they have an ownership share? Is the state liable since they’re the ones providing the subsidy program? Perhaps these questions will be answered later, but if the answer is simply as existing law, the program is no different from a state matchmaking program between investors and prospective homebuyers. Furthermore, subsidizing home purchases does nothing to address the real problem — the fact that home prices are so exorbitantly high in the first place that the plan is being discussed to begin with. Subsidies will increase demand, but demand is already high; it’s the low supply that needs to be addressed.

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More: https://journal.firsttuesday.us/proposed-plan-seeks-to-subsidize-nearly-half-the-price-of-a-first-home/78445/

Cities Will Soon Need a Plan to Process Organic Waste

A 2016 state law requiring organic waste to be processed separately from inorganic waste goes into effect at the start of 2022. However, even with the six year forewarning, cities still aren’t necessarily equipped to handle the change. Some cities, such as Carson, have processing plants allowing them to convert food waste into methane for use as renewable fuel, with fertilizer as a byproduct. But food waste isn’t the only type of organic waste, and the Carson facility can’t process other kinds.

Processing infrastructure isn’t the only issue, either. The cities’ sanitation departments will also need to change the way they collect. That’s easier said than done. The new law didn’t provide any additional funding, and Long Beach can really only afford to provide one additional bin to each household, so they’ll need to put all of their organic waste in the same bin. That means it’s going to need to be either resorted later, or processed at a facility that can process all types of organic waste. Some of the costs are probably going to come in the form of increases to collection bills for residents.

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More: https://lbpost.com/news/trash-smoothies-could-be-future-sources-of-fuel-but-cities-first-need-a-plan-to-process-organic-waste

End of Utility Disconnection Moratorium Could Spell Trouble

Last year, the California Public Utilities Commission (CPUC) imposed a moratorium on utility disconnects for nonpayment. The CPUC moratorium applies to both residential and commercial buildings, and they regulate the majority of electric and gas companies. However, this moratorium is slated to end July 1st, and the total amount owed is fast approaching $2 billion.

Utility companies aren’t about to simply forgive all of these charges. Fortunately, they’re thinking of plans that can help people balance their debts without owing large lump sums. Possibilities include partial forgiveness and/or rate categories, or even full forgiveness for qualifying households. California is also working on including utility aid in their state budget plan.

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More: https://patch.com/california/redondobeach/s/hlwq5/unpaid-ca-utility-bills-approaching-2-billion-survey

Expanded Dining Options to Remain Throughout 2021

As a concession to restaurants during COVID-19 restrictions, they were given access to expanded outdoor dining space and the option to provide alcohol as part of takeout orders. Indoor capacity restrictions have recently been removed, but in California, these options are staying throughout the rest of the year.

City officials agree that outdoor dining has brought something to the cities that they were lacking. Even though many of these new spaces are not zoned for eating areas, San Francisco mayor London Breed says they brought new life to the city even during a pandemic. In fact, she wants them to stay permanently, not just through 2021. There’s also a bill to extend to-go alcohol indefinitely.

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More: https://lbpost.com/news/california-to-allow-sale-of-to-go-cocktails-through-2021

California Delays Eliminating Mask Requirement

On May 13th, the CDC dropped the recommendation of wearing a mask for fully vaccinated persons. However, the CDC guidelines are only recommendations, not law. Federal, state, and local laws still apply. California law still has a mask requirement, so even fully vaccinated people should still be wearing masks inside businesses. The state has opted to wait until June 15th to remove this requirement.

Not everyone in California is vaccinated yet, particularly in underserved communities. The hope is that the four week period will help ensure more people are vaccinated, as well as give businesses time to readjust to the new regulations. Vaccination progress will be monitored. Current trends are good, so if they continue as they have been, vaccinated people should be able to keep their masks off after June 15th. Of course, the virus doesn’t care about laws — it may still be there after that date, so if you want to stay safe, nothing is preventing you from continuing to wear your mask until you feel comfortable.

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More: https://lbpost.com/news/california-keeps-mask-rules-june-15

Licensed Vs. Unlicensed Property Management

Contrary to popular belief, there is no governmental license designated as a “property management” license. The Institute of Real Estate Management (IREM) does have a Certified Property Manager (CPM) designation; however, the IREM is a private company and not a regulatory organization. There are also other third party certifications. It may be useful to have these certifications, because it could increase your credibility, but it’s not a legal requirement. That said, there is a government license that is required for some activities of a property manager: a real estate broker’s license.

Not all of a property manager’s activities require a broker’s license, and not all activities requiring a license are performed by all property managers, even if they are licensed. Two common property management services that do require a license are managing the operations of income property and collecting rent. Other things requiring a license are less commonly done by property managers: listing and marketing the property for lease or rent, locating income property, listing prospective tenants, and trading in leasehold interests. A property manager with a broker’s license could also designate an employee to perform these tasks, but the employee must have a brokers-associate license or a sales agent license.

There are still some things you can do as an unlicensed property manager, if you are managing an apartment or vacation rental. You can show available units and facilities, provide information about listed rates and provisions, provide application forms and answer questions about them, and accept screening fees, signed agreements, and rent and security deposits. Note that while a license is required to collect rent for an income property, it is not required to collect rent on apartments or vacation rentals. In addition, no license is required to act as a property manager if the income property owner has given you “attorney in fact” under a power of attorney as a result of temporary inability.

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More: https://journal.firsttuesday.us/brokerage-reminder-property-management-licensing-keeping-employees-compliant/53718/

Proposed Tax Law Changes for 2022

President Biden is due to release his 2022 budget plan in the fall of this year. Though nothing is set in stone yet, we have some ideas about proposed changes Biden plans to make to federal income taxes as well as estate and gift taxes. If any of these come true, it’s likely that the effective date will be January 1st, 2022, though it could be earlier. Here are some of the key proposals that may significantly shake up tax laws.

There are proposed increases to individual income tax rates, capital gains rates, and corporate income tax rates. Under these changes, the maximum individual income tax rate and maximum capital gains rate would likely become equal, both at 39.6%. A major change expected is the repeal of 1031 exchanges, which allow property owners to defer, sometimes perpetually, taxes on property sales when the proceeds are reinvested into real estate. There will probably also be changes to state and local income tax deductions. In the realm of estate and gift taxes, Biden is expected to drastically reduce the exemption amount and increase the tax rate.

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How to Establish a Living Trust

Many people may say that a particular property is owned by a trust, or in the name of a trust. Such statements may be pragmatically useful for conveying the idea, but it can lead to confusions. Not everyone is aware that trusts can’t actually own property. Instead, property is in the name of a trustee of a trust, and is held in trust, not by a trust. In addition, trusts for which the grantor is sole trustee are not separate taxable entities. When a property held in trust being titled, the titling should include the name of the trustee plus “trustee” or “as trustee,” as well as the name and date of the trust.

When establishing a trust, your Declaration of Trust is called a trust instrument. The name of your trust instrument must provide the name of the trust in addition to the instrument. Information about the property should be provided in the form of a separate Property Schedule attached to the trust instrument. When providing copies of your trust instrument, such as to banks, many will have their own certification of trust forms for you to fill out instead of copying the entire document. If they don’t, your state may be able to provide such a form. If you can’t find such a form, the relevant pages banks need is generally a page with the grantor’s name, a page appointing the trustee, a page listing the trustee’s powers, and signature pages.

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More: https://www.livingtrustnetwork.com/estate-planning-center/revocable-living-trust/how-to-fund-a-living-trust/titling-property-in-a-living-trust.html

Tax Deduction Changes Aimed at Helping Restaurants Through Pandemic

Part of the COVID relief package included a change to tax deductions for business meals. Until December 31, 2022, businesses can write off 100% of their food and beverage spending at restaurants. This provision does not include grocery stores, office cafeterias, or similar. It was designed to assist restaurants, which have been greatly affected by the pandemic, by encouraging business spending. It does include writeoffs by freelancers who are considered to own their own business.

There are some requirements. The business owner or an employee must be present, so it doesn’t apply to situations such as contactless pickup or delivery directly to a client. You need to keep your receipts and provide an explanation of when, where, why, and with whom the meal was shared. The meal must reasonably be considered business related, such as between coworkers or an agent and client, though it’s not necessary that the meeting be successful.

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More: https://blog.freelancersunion.org/2021/04/13/covid-era-business-meal-deductions-and-freelance-taxes-2021/

Amending Your Tax Return This Year May Give You a Bigger Break

Under normal circumstances, unemployment benefits are considered taxable income. However, the current circumstances aren’t normal. The American Rescue Plan brought with it a provision that the first $10,200 — or $20,400 if married and filing jointly — of your unemployment payments will not be taxed for 2020. The estimated tax break is around $1000 to $2000.

While the IRS will automatically adjust your tax refund amount, it may be helpful to send in an amended return, because tax credits are not automatically adjusted. The Earned Income Tax Credit (EITC) is a frequently unclaimed tax credit that can net you up to $6600 in additional credits, based on filing status, income, and number of children. Because a large portion of your unemployment benefits can be dropped off your income amount, it may cause you to become eligible for EITC if you were not already. Given how frequently it’s unclaimed, it’s also entirely possible that you were already eligible and didn’t bother to claim it, and you can still do so in an amended return. However, be aware that filing an amended return can cost money, and may not actually benefit you depending on the amount of additional tax credits you are eligible for.

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More: https://www.marketwatch.com/story/expecting-another-refund-after-the-irs-calculates-the-10-200-unemployment-tax-break-why-you-might-want-to-do-more-than-just-wait-11617794140

Common Interest Developments Subject to Rental Laws

Common interest development (CID) is a broad term referring to condominiums, community apartments, planned developments, and stock cooperatives. CIDs often have a homeowner’s association (HOA), which has been the governing force for how units within the CID are rented out, as CIDs have not been subject to government rental laws. California changed this in January, requiring CIDs to allow at least 25% of the owners to rent out the units. They also may not prohibit rentals of accessory dwelling units (ADUs). CIDs can still prohibit short-term rentals.

The law came into effect on January 1st, 2021. CID documents may not immediately reflect this change, but they still must abide the new law and are required to amend their documents by December 31st, 2021. Violation can result in a fine of up to $1000.

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Homestead Exemption Increased Earlier This Year

Assembly Bill 1885 went into effect January 1st of this year, increasing the debt exemption amount on a property when the owner’s spouse dies. Prior law set the amount at either $75,000, $100,000, or $175,000 depending on factors related to the residents. New law instead bases the amount on the countywide median sales price. The exemption amount is equal to this amount if the countywide median sales price is greater than $300,000, up to a maximum exemption of $600,000. Otherwise, the exemption amount is the minimum of $300,000.

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Revocable Transfer on Death Extended for Further Review

Back in November 2019, the California Law Revision Commission (CLRC) recommended some changes to the laws surrounding the Revocable Transfer on Death Deed (RTDD). RTDD simplifies the process of transferring properties upon death. CLRC also suggested a 10 year extension, but noted that further study would be required. RTDD was set to expire on January 1, 2021, but the pandemic has made review difficult. To give more time for review, it has now been extended an additional year, to January 2022.

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California Cities Push for More Medium-Density Zoning

Populous cities are generally considered to be higher density areas, but in some of the largest cities in California, about 75% of the land is zoned for single-family residences. The history of the overabundance of SFRs can be traced back to segregation. It was a tool designed to price out lower-income Black people from predominantly white neighborhoods, something which cities hope to rectify with new zoning laws.

Though many people aren’t aware of the racist roots, and rezoning isn’t going to completely eliminate racism, SFRs are outdated in more ways than one. California desperately needs more affordable housing, but building large apartment complexes is expensive for construction companies. The middle ground is medium-density housing, such as triplexes and fourplexes. To that end, San Francisco has drafted plans to allow fourplexes in every district considered a residential district. A few other Bay Area cities are considering similar plans.

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More: https://www.npr.org/2021/03/13/973770308/facing-housing-crunch-california-cities-rethink-single-family-neighborhoods

Proposed Tax Credit Could Jumpstart Renter Homeownership

President Biden has proposed a $15,000 tax credit for first-time homebuyers, perhaps aimed at allowing renters who were getting ready to make the jump to homeownership before the pandemic to realize their plans. Not all renters have homeownership in the near future, but it’s possible that the tax credit could help quite a few people. Assuming a down payment of 3.5% for a 30-year loan at 3% interest rate, it could be a boon to renters in 40 of the 50 largest US metros.

Since it’s a flat amount and not a percentage, the tax credit would be especially useful in less expensive metro areas. Areas like Pittsburgh, Cincinnati, Cleveland, and St. Louis could see somewhere around 40% of renters being able to afford a mortgage on the median property with the tax credit. More expensive regions, such as California, aren’t going to benefit as much. It’s more likely that the number of people aided would be only in the thousands. However, these are all probably high estimates, since they are based on the minimum down payment of 3.5% for an FHA loan, which is not ideal.

The proposal does have one major flaw. Currently, demand is quite high and supply is incredibly low. The supply of available properties is already struggling to support the number of prospective buyers. If first-time homebuyers start trying to take advantage of their tax credit, it’s probable they’ll be entirely out of luck. Competition is fierce with multiple offers per property, and those attempting to use tax credits to scrape together money to buy aren’t likely to be providing the best offer.

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More: https://www.housingwire.com/articles/renters-and-bidens-15000-homebuyer-tax-credit/