Real Estate Principles - Unit 3

Regulation Z requires that creditors make certain disclosures for real property secured loans. These disclosures include:

- Amount financed - Finance charge - Annual percentage rate - Total of payments - Payment schedule.

These principals govern that agency relationship

- Both parties must consent to the relationship - Both parties must agree to form the relationship - The relationship is fiduciary - meaning the agent owes certain duties to the principal.

Exercising Disclosure: An agent for a buyer has duty to disclose things such as:

- Deficiencies in the property - Any contract provision of financing terms that don't suit the buyer's interests - How long the property has been listed - Why the seller is selling

Most common disclosure forms you need to be familiar with:

- Disclosure Regarding Real Estate Agency Relationships - Real Estate Transfer Disclosure Statement - Agent's Inspectin Disclosure - Residential Earthquake Hazards Report - Natural Hazard Disclosure Statement - Lead-based Paint Disclosure

Real Estate Settlement Procedures Act

- For federally-related loans, the lender or mortgage broker must furnish a GOOD FAITH ESTIMATE of closing costs within 3 days of the loan application and provide a booklet published by the Department of Housing and Urban Development (HUD) - The lender or mortgager broker must provide a written SERVICING DISCLOSURE STATEMENT which indicates whether he/she expects that someone else will be serving the loan. This disclosre must be given at the time of the loan application or within 3 business days. - 1 business day before the settlement or the anticipated close of the loan escrow, the borrower has the right to inspect the proposed HUD-1 SETTLEMENT STATEMENT which must be given to the borrower on or before settlement. - RESPA also requires that borrowers receive disclosures about business relationships that may exist among lenders/creditors and settlement service providers.

Exercising Care - Representing the Buyer

- Helping the buyer locate appropriate housing - Evlauating property values and property conditions - Determining financing alternatives - Presenting offers and couteroffers with the buyer's interests in mind

Exercising Care Representing the Seller

- Helping the seller set a realistic asking price - Discovering and disclosing facts that affect the seller - Presenting contracts properly - Marketing the property effectively - Helping the seller evaluate purchase offers

Delivery for this disclosure statement is:

- If there is only one agent involved in the transaction, that agent is responsible for the delivery. - If there are two agents, the selling agent is responsible for delivery.

Disclosure Regarding Real Estate Agency Relationships

- Licensee must clearly and thoroughly explain to his or her prospective client the three types of agent relationships available - seller's agent, buyer's agent, or dual agent. - Once the client fully understands these terms and the duties associated with each, he or she can decide which relationship will work best to meet his or her needs. - The client and licensee will confirm the receipt of the disclosure by signing the form.

Other California Disclosures

- Mello-Roos Bond Disclosure - Subdivision Disclosures - Common Interest Subdivision

Exercising Disclosure: An agent for a seller has duty to disclose things such as:

- Purchase offers - Who the prospecive purchasers are and if the agent has a relaitonship with them in any way. - Ability of the purchaser to complete the transaction. - Ability of the purchaser to offer a higher price. - Purchaser's intention to resell the property for a profit.

The exemptions are the following transfers:

- Requiring a public report - Pursuant to a court order - By Default or foreclosure - By a fiduciary administering a decedent's estate - from one co-owner to one or more other co-owners - Between spouses or blood relatives - Between spouses in a divorce - By the state Controller - As a result of failure to pay property taxes - To or from any government entity

Combined Hazards Book

- Residential Environmental Hazards Guide - includes a toxic mold update. - protect Your family From Lead in Your Home - Prepared by the Federal Environmental Protection Agency and required for any homes built prior to 1978. - The Homeowner's Guide to Earthquake Safety - Includes the gas shutoff valve update. - gives all of the guides that you need. Adequate info, meets the requirement.

Broker and lending financing disclosures

- Seller Financing Disclosure - Mortgage Loan Disclosure Statement - Adjustable Rate Loan - Real Estate Settlement Procedures Act - Truth in Lending Act and Regulation Z - Notice of transfer of Loan Servicing - Notice of Adverse Action - Housing Financial Discrimination Act

Public report contains;

- The declaration of covenants, conditions, and restrictions - The articles of incorporation and bylaws for the association - Any other instrument which establishes of defines the common, mutual, and reciprocal rights and responsibilities of the owners or lessees of interest in the development. - The current budget, including estimated reserves and related financial statements of the association. - A statement prepared by the governing body of the association regarding any outstanding delinquent assessments and related changes levied by the Associatoin against the subdivision interest the prospective buyer or lessee is considering buying or leasing. MUST BE DELIVERED PRIOR TO ESCROW.

California Code defines these rules for providing the agency disclosure:

- The listing agent must provide the disclosure to the seller prior to securing the listing agreement - The selling agent must provide the disclosure to the seller "as soon as practicable" prior to presenting a purchase offer. - If the selling agent does not deal directly with the sller, the listing agent may deliver the form prepared by the selling agent to the seller (or the selling agent can mail it via certified mail.) - The selling agent must provide the disclosure to the buyer "as soon as practicable" prior to the execution of the buyer's offer to purchase.

If the agent represents the seller, he or she may not disclose except to their broker without the seller's express permission things such as:

- client's willingess to accept an offer lower than the asking price. - Client's anxiousness to sell. - However, agent must disclose material facts about the property.

If the agent represents the buyer, he or she may not disclose except to their broker without the buyer's express permission things such as;

- client's willingess to pay more than asking price. - Client's need or desire to move quickly.

Check Your Understanding

1) What required disclosure is a result of Megan's law? - Requires every sales contract or lease contain a notice which sates that info about sex offenders registered under Megan's Law is available to the public on a website by the Department of Justice. 2) What disclosures are NOT required to be made when selling residential property? - Natural deaths, unnatural deaths occurring more than three years prior to the sale and info about residents having aids or died of aids. 3) What is a public report and when must it be provided? -- A public report is a statement from the Bureau of Real Estate that discloses to prospective buyers pertinent facts about a subdivision. Purchasers must sign a receipt indicating that they have received and accepted the report before they enter into the purchase transaction. 4) What does the Real Estate Settlement Procedures Act require of lenders? - They give good faith estimate of closing costs within three days of the loan application, that they give the HUD-1 Settlement Statement to the buyer at or before settlement and allow the borrower to inspect the statement one business day ebfore closing.

Check Your Understanding

1) When is an agency relationship created? - An agency relationship is craeated when a person (principal) delegates to another person (agent) the right to act on his or her behalf in business transactions with third parties. 2) What exception exists to the duty of obedience when working with a client? - When the client's instrutions are not legal. 3) An agent's fiduciary responsibilities to a client usually end when the transaction closes. This is not true of which duty? - Confidentiality - No personal info gained during the term of the agreement can ever be disclosed to another party except the broker. 4) Amanda calls broker Tim to schedule a showing of one of his listings. Amanda loves the home and wants to make an offer. What should Tim do next? - Tell Amanda that he is representing the seller and herself. If she is fine with that and if the seller is fine and can get written agreements, they an have a dual agency. If not, Amanda needs to find someone else to represent her.

Check Your Understandings

1) When must a licensee provide an agency disclosure to a prospective client? - The listing agent must provide the disclosure to the seller prior to securing the listing agreement. - The selling agent must provide the disclosure to the seller "as soon as practicable" prior to presenting a purchase offer. - The selling agent must provide the disclosure to the buyer "as soon as practicable" prior to the execution of the buyer's offer to purchase. 2) What is the Real Estate Transfer Disclosure Statement and who is responsible for providing it? - It is a statement that describes the condition of the property in detail.The seller must complete it, sign it and provide it to the buyer, but there is a section on page three of the form that the seller's agent must complete and sign. 3) Agent Jim needs to do a visual inspection of his listing. What kinds of things should he be looking for? - Structural defects, deterioration, water damages, and inspect damage. 4) Why should agent Grace give her client a Combined Hazards Book? - This book contains three booklets which meet the seller's and agent's requirements for disclosures of earthquakes hazards, lead-based paint and other environmental hazard.

There are no exemption allowed under this rule. If an agent does not comply, a buyer has

2 years from the date of possession to file suit.

Exercising Obedience - Fiduciary Duties

Acting in good faith and OBEY THE PRINCIPAL'S DIRECTIONS AS OUTLINED IN THE CONTRACT, AS LONG AS THEY ARE LEGAL.

Single Agency

Agent can represent only one party in a single transacion. Agent owes fiduciary duties to ONE principal. All other parties to te transaction receive service as customers, not clients.

Seller Agreement

Agent enters an agency agreement with a seller, becoming the seller's agent. Agent is accountable only to seller. Any buyers are customers

Buyer Agreement

Agent enters an agency agreement with buyer, becomng buyer's agent. Any sellers are customers. Agent is only accountable to the buyer.

Exercising Disclosure - Fiduciary Duties

Agent must inform the client of all material facts that might affect the client's interest in the transaction. Includes facts that the agent knows and those that the agent should have known. rule came law in California in 1984 with the Easton V. Strassurger.

The agent reports the results of the inspection on the

Agent's Inspection Disclosure. Page 3 of the Real Estate Transfer Disclosure Statement.

Housing Financial Discrimination Act (Holden Act)

At the time of the loan application, lenders must notify all prospective borrowers of their rights under the Holden Act and its prohibitions against discriminatory practices by lenders.

Agency

Basic relationship between a broker and the person he or she represents in a transaction

Military Ordnance

California Code requires if a seller know that is property is located within one mile of a former military training site, the seller must inform the potential buyer that it may contain ammunition or explosives.

Agency relationship imposes fiduciary duties on both the client and agent. They are moral and ethical, but also legal:

Care Obedience Accountability Loyalty Disclosure or Notice COALD

Sellers of commercial property must five prospective buyers a copy of the booklet

Commercial Property Owner's Guide to Earthquake Safety, covers for the legal requirement for selling commercial property n California. This guide is adequate info for the buyer. Not required for any extra buy the seller unless he or she has knowledge of any hazards,

Disclosures not Required

Death - Sellers or agents are not required to disclose any death that happened on a property more than three years before the offer. It is wise to disclose any unnatural deaths or answer truthfully any direct question about death by the prospective buyer regardless of how long ago.

Note of Transfer of Loan Servicing

If a loan is secured by a one-to-four-unit property, the lender must notify the borrower when the loan collection is transferred to another entity

Certain disclosures are mandated

Information is required by law to be passed from one party to another.

Notice of Adverse Action (Equal Credit Opportunity Act)

Lender or creditor who denies an application for credit must provide the applicant with a statement of reasons or a written notification of the applicant's right to obtain such a statement, within 30 days after receiving the completed loan application.

Undisclosed Agency is a violation of

License law and could result in lawsuit for damages or disciplinary action by the commission.

Selling Agent

Licensee who brings the buyer to complete the transaction.

Listing agent

Licensee who lists the seller's property

If an agent fails to exert reasonable efforts to represent his client's interest he or she is guilty of

Negligence. Can be liable to the principle for any loss that results from carelessness or negligence.

Transaction Broker

Not an agent for either party. They are facilitators or intermediaries to assist the buyer and seller in the property transfer. Even though they do not owe fiduciary responsibilities to their customers, they are obligated to disclose known material defects in the property.

This Real Estate Transfer Disclosure Statement is a two page statement that includes the following sections: (selling one-to-four-unit property)

Part A - Identifies the items contained in the home and whether or not they are operational. Part B - Describes any significant defects or malfunctions in the home. Part C - Identifies miscellaneous items such as known environmental hazards, easements or encroachments, improvements or alterations to the property, zoning, or neighborhood concerns.

Exercising Loyalty - Fiduciary Duties

Place the client's interests above those of all others, including his or her own. An agent must negotiate agreements without considering the amount of compensation. - Confidentiality is important aspect of loyalty.

Dual Agency

Representing both parties in the same transaction. Example, If John signs a buyer' agency agreement with salesperon Tim and then John is interested in a home that is listed by Tim's broker, the broker becomes a dual agent. OFTEN DIFFICULT OR IMPOSSIBLE BECAUSE IT'S DIFFICULT TO OWE FIDUCIARY DUTIES TO BOTH PPRINCIPALS, THE BUYER AND SELLER.

Truth in Lending Act and Regulation Z

Requires a creditor to furnish certain disclosures to the consumer before making a contract for a loan.

Sex Offender Databse

Requires every sales contract or leas contain a notice which states that info about sex offenders reigstered under Megan;s Law is available to the public on an internet web site: www.meganslaw.ca.gov.

Real Estate Settlement procedures Act

Requires that borrowers receive various disclosures regarding the proposed loan transaction.

Seller Financing Disclosure

Seller financing arrangements on all one-to-four-unit residences must be disclosed to both seller and the buyer using the Seller Financing Addendum and Disclosure form.

Mello-Roos Bond Disclosure

Seller of a one-to-four-unit residential property subject to a mello-Roos bond must make a good faith effort to obtain a disclosure noic from the district concerning the special tax. Seller must give notice to prospective buyer. IF SELLER FAILS PRIOR TO SIGNING A SALES CONTRACT OR LEASE, THE BUYER OR TENANT HAS THE RIGHT TO CANCEL THE CONTRACT WITHIN THREE DAYS AFETR THE RECEIPT OF TH NOTICE.

Aids

Sellers of their agents are PROHIBITED from disclosing that a former owner or occupant ever had AIDS or died from it under the Federal Fair Housing Act.

Important things to look for:

Structural Defects - Look for things like cracks in foundations, inside or outside walls or around doors and windows. Structural damage might also be the culprit if floors are bulging or creek excessively or if doors don't close correctly. Deterioration - Look for things like warping floors or porches, rotting or cracked windows and doors, or the wearing away of concrete or mortar. - Water damage - Look for stains on ceilings, evidence of mold, rotting wood, peeling inside paint, rust or mildew stains or problems with the roof. - Inspect Damage - look for the telltake signs of ants or termites, such as piles of wood shavings or "tunnels" of mud that move across concrete to wood or from the ground to w odden surface. REMEMBER AGENT MUST DISCLOSE OTHER ITEMS THAT CAN INFLUENCE THE BUYER'S DECISION TO PURCHASE PROPERTY LIKE PROXIMITY TO AN EARTHQUAKE FAULT OR LOCATION IN A FLOOD PLAIN.

If an instruction by the cient is illegal and won't remove it from the contract

The agent should withdraw from the relationship

California Civil Cod states that if the buyer receives a copy of The Homeowners Guide to Earthquake Safety

The seller and seller's agent are not required to furnish additional info, unless they know of hazards affecting property. Otherwise, the guide is adequate info for the buyer

Designated Agency

To avoid the conflict with dual agency, some states allow designated agency. A broker, with written consent of the principal, may designate one or more licensees to act exclusively as the agent of the seller or landlord, and one or more licensees act exclusively as the agent of the buyer or tenant in the same transaction. SO THERE ARE TWO DIFFERENT AGENTS PER CLIENT TO AVOID CONFLICTS.

Truth in Lending allows the consumer the right

To rescind the contract until midnight of the third business day following the completion of the loan.

Rescission rights

a buyer may have the right to rescind a contract under some circumstances with types of disclosures.

Homeowner's Guide to Earthquake Safety contains

a form called Residential Earthquake Hazards Report. Seller fills out and signs and is subsequently signed by the buyer as acknowledgement of receipt. The form has 7 questions which will help determine the home's earthquake weaknesses.

Entering into an agency is

a legal action, which makes an agent legally liable if he or she violates the duties owned to the client.

Any person intending to ofer subdivided lands for sale or lease must apply for and obtain

a public report from the Bureau of Real Estate.

Any person who is selling a one-to-four-unit property must provide the buyer with

a written disclosure statement that describes the condition of the property.

The disclosure must be made before

any note is executed, The seller and buyer must all sign the disclosure. The seller and buyer must receive copies of the signed disclosure and the arranger must keep a copy on file for THREE YEARS.

The general law of agency

applies to all business transactions

In California, an agent i defined

as a person licensed as a real estate broker.

Licensees who work under the supervision of the broker are designated as

associate licenseees

Agency relationship is based on

authorization and mututal consent. Not compensation.

Although Dual Agencies are very difficult, nearly impossible, they are still legal if

buyer and seller are informed of the situation and give their written cons

California reguires agents to conduct a

competent and diligent inspection of property they list and disclose the results to buyers.

Broker who offers single Agency may choose to represent buyers or sellers

exclusively. If firm chooses to represent sellers only, then all buyers who come to that firm are considered customers.

California Real Estate Law Disclosure Chart

helps members understand the complex disclosure requirements in California, the California Association of REALTORS has published the California Real Estate Law Disclosure Chart

One of the problems with the Agent's Inspection Disclosure is that

it does not cover very specific areas, leaving agents to guess hat they should inspect. A good idea to use the Seller's portion of the Real Estate Transfer Disclosure Statement as a guide in doing your inspection.

Natural hazards Disclosure Statement

lists the items that the seller must disclose: - Special flood hazard area - Area of potential flooding - Very high fire hazard zone - State fire responsibility area - Earthquake fault zone - Seismic hazard zone

Statement explains hat ownership in a common interest development means in regars to such things as

mandatory membership in the association, rights and remedies under the governing documents, payment of assessments, ownership and use of he recreational facilities, responsibilities and powers of the governing body, voting rights an other rights belonging to the members/ owners.

Undivided interest buyers have a right to rescind the purchase by

midnight of the third calendar day following the day the purchaser executed the offer to purchase.

Mortgage Loan Disclosure Statement - Any real estate broker who solicits or negotiates loans on behalf of borrowers or lenders which will be secured directly or collaterally by liens on real property

must deliver a written mortgage loan disclosure statement to the borrower within three business days of receipt of the borrowers written loan application.

Adjustable Rate Loan Disclosure - A lender offering adjustable-rate residential mortgage loans

must provide prospective borrowers with a copy of the most recent Federal Reserve Board publication called Consumer Handbook on Adjustable Rate Mortgages

You are not exempt from disclosing just cause a form you used was

outdated or incomplete. MAKE SURE TO USE THE LATEST APPROVED FORMS FOR CALIFORNIA.

Report discloses to prospective buyers

pertinent fats about a subdivision. The report includes info about utilities and water, roads, soil, and geologic conditions, title, zoning and use, hazards and any financial arrangements for completion of the subdivision. PURCHASERS MUST SIGN A RECEIPT INDICATING THEY RECEIVED AND ACCEPTED REPORT BEFORE THEY ENTER INTO THE PURCHASE TRANSACTION. SUBDIVIDER MUST KEEP RECEIPT FOR THREE YEARS.

Buyer must receive a copy of this disclosure statement

prior to the execution of an offer to purchase

The federal government requires that owners of homes built prior to 1978

provide a buyer booklet entitled Protect Your Family From Lead in Your Home.

Exercising Accounting - Fiduciary Duties

responsible for all monies, documents, and other property he or she receives from the principal.

If the principal in the relationship is the seller then the broker is the

seller's agent. Vce Versa - buyers agent

Sellers or landlords or residences built prior to 1978 must fill out, sign and provide the prospective buyer or tenant

the Lead-Based Paint and Lead Based Paint Hazards Disclosure regardless of whether or not the owner knows if lead-based paint was ever used on the property.

If the disclosure is received after the execution of the offer to purchase,

the buyer has the right to cancel the offer within three days after delivery in person by writing a notice of termination and delivering it to the seller or the seller's agent.

When a seller is carrying back a note,

the disclosure requirement falls to the person who is"arranging the credit" Usually a real estate agent or possibly an attorney who is involved in the transaction.

A common interest subdivision is when

the owners own or lease an individual lot or unit and have an undivided interest in the common areas of the development. Examples: planned developments, stock cooperatives, condominiums, or community apartment projects.

California Civil Code states that if the buyer receives a copy of the Residential Environmental Hazards guide,

the seller and seller's agent aren't required to furnish any more info unless they know there are environmental hazards.

hen selling lots or units in a common interest subdivision,

the subdivider or agent must give the buyer the public report and also a statement called Common Interest Development general Information.

When selling or leasing lots in a common interest subdivision requiring a public report prior to the offering,

the subdivider or agent must make the following documents available to the prospective buyer or lessee before the execution of an offer to purchase or lease.

Even though agency law is separate from contract law

they come otgether in interpreting relationships between licensees and the persons they represent.

Seller Financing Disclosure - When there is more than one arranger of credit, the agent who bought the purchase offer - the selling agent - is the one responsible for making the disclosure

unless it is otherwise stipulated in writing.

California agents are required to conduct a competent and diligent

visual inspection of a one-to-four-unit property and disclose the material facts to a prospective buyer . THE INSPECTION DOES NOT INCLUDE AREAS THAT WOULD BE DEEMD AS REASONABLY OR NORMALLY INACCESSIBLE.

Agency Relationship

when a person (buyer or seller) also called the principal, delegeates to another person (agent), the right to act on his or her behalf in business transactions with third parties.

Time share buyers have a right to rescind the purchase

within 7 calendar days after receiving the public report or after signing the purchase contract, whichever is later.