Roy L. Kaufmann, Jackson & Campbell, P.C. GCAAR 2006 Legislative Update Roy Kaufmann.

Roy L. Kaufmann, Jackson & Campbell, P.C.

GCAAR 2006GCAAR 2006

Legislative UpdateRoy Kaufmann

Roy L. Kaufmann, Jackson & Campbell, P.C. - 2

Agent Recommends Agent Recommends Home InspectorHome Inspector

Selling Agent recommends a particular home inspector

Inspector gives favorable report

Buyer removed inspection contingency and closes

Rear Wall later collapses


Buyer Alleges 2 ClaimsBuyer Alleges 2 Claims

First: Violation of DC Consumer Protection Procedures Act by recommending the services of an inspector which proved to be of deficient quality.

(28 DC Code 3901): “It shall be a violation … for any person to: (d) represent that goods or services are of particular standard, quality, grade, style, or model, if in fact they are of another”


Buyer’s Second ClaimBuyer’s Second Claim

Agent violated DC law governing fiduciary duties of real estate agents to clients.

§ 47-2853.192 says: “a) A licensee engaged by a buyer shall: 2) Promote the interests of the buyer by: Disclosing to the buyer material facts related to the property [and] (4) Exercise ordinary care”


Proving Negligence at TrialProving Negligence at Trial

Expert Testimony: to show the degree of learning and skill

ordinarily possessed by an agent practicing in this geographic area

To use the care and skill ordinarily used in like cases by reputable agents under similar circumstances and to use reasonable discretion and best judgment.


In this caseIn this case

Plaintiff decided not to produce expert testimony. Instead, plaintiff relied upon the two laws we looked at:

Consumer Protection by participating in the “misrepresentation” of the qualifications of the inspector

Duty to exercise ordinary care.


Court of Appeals Finds:Court of Appeals Finds:

Consumer Protection Act does not make a guarantor out of the person who recommends a service provider


Court Also FindsCourt Also Finds

DC Law governing fiduciary duty does NOT present a meaningful standard of care.

At trial, Buyer failed to present expert testimony about standard of care expected of agents and how the agent was supposed to have breached that standard.


Agent PrevailsAgent Prevails

Because the Court found that

A) a person who refers a service provider is not a guarantor and

B) no breach of standard of care shown

Claims NOT proved against Agent

901 A.2d 174


Word to the WiseWord to the Wise

Negligence is when you fail to maintain the standards of the industry

Standards Change Resources Change “I’ve always done it this

way” won’t work


GWU’s ExpansionGWU’s Expansion

GWU sought to expand its campus

DC Board of Zoning Adjustment (BZA) issues limitations which GWU ignores

Neighbors file suit to enforce BZA order


Court FindsCourt Finds

Neighbors do not have a “property interest” in asking BZA to enforce its order

441 F. Supp 2d 84 (2006)


Lis PendensLis Pendens

“Let’s file a lien against the property”

Latin for "a suit pending," a written notice that a lawsuit has been filed which concerns the title to real property or some interest in that real property.


Lis PendensLis Pendens

Suit has to be filed first Title or Interest (not liability) Recorded at Recorder of Deeds Clouds Title Suit for improper use


ForeclosuresForeclosures

At time of a regular settlement, 2 documents executed• Note• Deed of Trust

Two Remedies available in event of default:• Sue on the note and forget about the

property• Foreclose on the Deed of Trust


Foreclosure on Foreclosure on Deed of TrustDeed of Trust

Non-judicial foreclosure (no one goes to court)• Advertisement, Auction, Right to

redeem Judicial Foreclosure

• Go to Court and have the court supervise the foreclosure process

• Rarely used in DC because more expensive and slower, but sometimes required


Tax SalesTax Sales

July Auction 5% must be in the kitty – must be

augmented through auction Bid starts with amount in newspaper

ad: one year’s taxes Increments are surplus (no interest

earned)


Tax SalesTax Sales

It’s an Industry Very specific statutory

requirements Title search Suit filed within one

year File Lis Pendens Posting Service of Process


Tax SalesTax Sales

Owner and some interested parties have right to redeem until the end

The only effective way to stop a tax sale is to redeem.

Redemption = pay all taxes and costs of suit

Could be multiple foreclosure actions

New law versus old


Note that Law Requires Note that Law Requires Filing the Lis PendensFiling the Lis Pendens

In olden days, if you filed a lawsuit in DC Superior Court and added the words “Real Property” or initials “RP”, there was imputed notice to the public that there is a lawsuit pending.

Common law “lis pendens” Title Abstractors would search for

these when doing title search


LawsuitLawsuit

Tax Sale Foreclosure Plaintiff relied upon old system and put

“RP” on the Complaint, but did not record a Lis Pendens.

Property owner entered into a contract with a third party during foreclosure

Third party searched ROD (“Recorder of Deeds) records and found no Lis Pendens


Issue of CaseIssue of Case

Was the filing of the lawsuit with the designation of “RP” enough to invoke the common law theory of Lis Pendens?

Answer: no: The statutes over-ride common law. The statute is clear that Lis Pendenses have to be filed at ROD to be effective. 905 A.2d 181 (D.C. 2006)


US Supreme Court US Supreme Court Weighs InWeighs In

Notice of Tax Sale mailed to owner by certified mail

Returned to government as undelivered

Court holds that 14th Amendment (“Due Process”) requires the government to take additional reasonable steps to provide notice if the original notice is returned.


DC Meets That StandardDC Meets That Standard

Government mails two notices Newspaper advertisement After suit is filed

• Posting on property of the summons• Newspaper Order of Publication• Personal service

Court may consider Service by Publication


What is this Document? What is this Document?


It’s Not a Survey, It’s Not a Survey, it’s a LOCATION DRAWING!it’s a LOCATION DRAWING!


Title Insurance Wouldn’t HelpTitle Insurance Wouldn’t Help the Buyer with the Shed the Buyer with the Shed

Exclusion: Encroachments, overlaps, boundary line disputes, variations in area, party walls, roads, ways, streams, easements … or other matters which would be disclosed by an accurate survey of the land and which are not shown by public records.


Additional ExclusionAdditional Exclusion

Rights of parties in possession (as to shed)

This should have been ascertainable upon visual inspection.


Lesson to LearnLesson to Learn

You and client should understand difference between a location drawing, survey and ALTA Survey

Reviewing the land with location drawing in hand.

Initialing drawing at closing

Requesting deletion of “survey exception”.


Law Change: Law Change: Recordation & Transfer TaxesRecordation & Transfer Taxes

2.2% for residences under $400,000 (includes both taxes)

All other transfers: $2.9% On non-exempt deeds of trust

1.45% (mostly applies to commercial or construction loans)

Effective this past October 1.


Exemptions from Exemptions from Recordation/Transfer TaxesRecordation/Transfer Taxes

Recordation: to RECORD the deed (usually paid by purchaser)

Transfer Tax: usually paid by Seller 2 taxes are equal in dollars Exemptions from these 2 taxes are

found in different volumes of the DC Code and are not parallel (though, the dissimilarities are often ignored)


Exemption from Exemption from Recordation TaxRecordation Tax

Between H & W/Domestic partners or between children IF no consideration paid

Between former H/Ws if incident to a divorce

Deeds from a Personal Representative under a will, distributing the property (if there is a sale, there will be a recordation tax).


Exemptions from Exemptions from Recordation TaxRecordation Tax

Deeds involved with Lower Income Abatement Program• Application must accompany filing of

deed• 3 benefits:

Buyer pays no recordation tax Buyer pays no real estate taxes for 5

years Buyer receives a CREDIT for the transfer

tax


Exemptions from Exemptions from Recordation TaxRecordation Tax

No tax on a mortgage filed simultaneously with deed, unless the mortgage exceeds purchase price, i.e. construction to permanent

Deeds INTO a revocable trust• Deeds out of a revocable trust ARE

taxed unless due to death of Grantor From General Partnership to LLC


New DC Tax CreditNew DC Tax Credit

For installation of an alternative energy source or energy saving measures (i.e. 25% of the cost of substituting double-paned windows, caulking of windows, etc.). Effective this year.


Percentages VaryPercentages Vary

High-efficiency hot water heater or heater or insulation of duct work, thermal windows: 25%

Insulation of walls, floors, ceiling: 20%

High-energy appliances or ceiling fans: 20%

Energy-efficient lighting: 15% Programmable Thermostat: 10%


Tax Credit is LimitedTax Credit is Limited

Annual credit cannot exceed $500 ($2,000 if new construction) BUT, you can carry forward any unused credit over 5 years.

47 DC Code 1806.11


Rent Control Ceilings Rent Control Ceilings AbolishedAbolished

Old Law New Law

Ceilings Complex, labor-intensive

Abolished

Rent increases

Every 180 days

Once a year

Cap Per Ceiling (no cap)

Generally, 2% + CPI


Rent Control AbolishedRent Control Abolished

Old Law New Law

Caps on Vacant Units

OK to raise to rent charged for substantially similar unit

No more than 30% of rent charged for vacant unit


Non-Titled Spouses andNon-Titled Spouses andDomestic PartnersDomestic Partners

Dower Abolished in 2001 Prior to that, spouses had to be

found Trouble, cost, inconvenience, delays When dower was abolished this

requirement was relaxed by the title industry


Requirements ResurfacesRequirements Resurfaces

15 DC Code 502 reset the requirement of signatures on deeds of trust of spouses and domestic partners who may “reside” in the property.

Again, inconvenience What does “reside” mean? Dual residences, military, FSO Intrusive questions


New Law ProposedNew Law ProposedWrite to your Councilperson!Write to your Councilperson!

Bill 16-671 will fix this by correcting 15-502 to eliminate the need for spousal/domestic partner signatures unless s/he is on title.

Take a moment to write your councilmember to support Bill 16-671.


New Office of New Office of Tenant AdvocateTenant Advocate

Provides Education to Tenants Ambulance chasing Represent interests of tenants in

legislative, executive and judicial issues, including advocating changes and reviewing landlord petitions representing the tenants’ interests.

Advising Tenants on filing complaints against landlords, organize tenant participation in building-wide inspections

Representing tenants in court or administrative proceedings.


The Bear: TOPAThe Bear: TOPA(“Tenant Opportunity to Purchase Act”)(“Tenant Opportunity to Purchase Act”)

1980 Originates to address:

Housing crisis Severe shortage of

rental housing Condo Conversion

depletes rental housing stock

Lower Income, elderly most affected


Have the Objectives Have the Objectives Been Achieved?Been Achieved?

Statistics seem to show that the law has not affected the rental housing stock at all.

When a tenant group partners with a developer, usually the units do not remain rental (elderly, disabled excepted)

Is purpose to retain rental stock or assist first-time buyers?


Practical ResultsPractical Results

Sellers have uncertainty and time delays: for 5 or more units, tenants have 420 days from date of notification to negotiate and close

For single family, it can be up to 195 days and 2-4 units, up to 277 days.

Even after these periods pass, the tenants may not be able to close and 3rd party contract is lost.


2005 Amendment2005 Amendment

95/5 tightened up, as the definition of “sale” was broadened.

Exemptions were developed to a “sale” that triggers TOPA rights

If the landlord/seller wants to claim an exemption, he generally has to fill out a special form available from DCRA

DCRA has no forms


Specifics: Definition ofSpecifics: Definition of “Tenant” “Tenant”

Definition of tenant: a tenant, subtenant, lessee, or other person entitled to the possession, occupancy or benefits of a rental unit.

Problem with definition: besides those who have a lease, who else is included? What are “benefits of a rental unit”?


“If the names of 2 or more persons appear on a rental agreement, those persons shall determine which person may exercise a vote under this Act”.

Note: are we talking now about a rental agreement having to exist? What happens if there is a disagreement between the two people? With whom does seller have to negotiate?


Task Force SuggestsTask Force Suggests

“Tenant” is the “head of household” rather than waiting for a “vote” of the occupants


Conversion TaxConversion Tax

5% of sales price Lien recorded at time of filing of

condo declaration DC has no form Penalty for underestimating the 5% If a unit has not closed within 2

years of filing of lien, you owe the tax anyway and must pay it.


Definition of a Definition of a “Housing Accommodation”“Housing Accommodation”

Current definition: any structure containing 1 or more rental units, excluding hotel, motel, rooming house IF the landlord has been paying the “hotel sales tax” IF the occupant has been there for less than 15 days.

Obvious problem


Task Force SuggestionTask Force Suggestion

Delete the 15 days language Add foreign government properties,

nursing homes, hospitals, university dormitories, etc.

Task force decided to KEEP single family dwellings as subject to TOPA


Exclusions from “Sale”Exclusions from “Sale”

To decedent’s estate, even if for consideration (i.e. money paid by heirs), only if • To spouse, domestic partner, children or

lineal descendants.• consideration is given to charity.

Query: What if no consideration is paid? Cannot leave property to my mother? My nieces? My death triggers TOPA rights?


Exclusions from Exclusions from definition of “Sale”definition of “Sale”

Life-time transfer without consideration to wife …. Parents, grandparents

Query: If I am alive, I can transfer to my mother without worrying about TOPA. If I die, that is a problem. Any transfer to nieces or lifelong friends triggers TOPA


ExclusionsExclusions

Exempt if caused by change in the form of an entity owning the property, if without consideration

Partnership to LLC, etc.

Transfers in and out of a revocable trust

Transfer pursuant to court order


What is NOT ExcludedWhat is NOT Excluded

Transfers among the existing owners (i.e. buying out another person’s interest)

Transfers to non-immediate family members

Transfers to charities


Task Force RecommendsTask Force Recommends

Exclude any transfers under a Will Changes in form of entity only if

operational control of the entity is not changed

Exclude charities (only 501-c-3’s), transfers among co-owners


How to Claim Exemption?How to Claim Exemption?

Must Send Special Notice on DCRA Form to tenants and to DCRA

DCRA has no forms If you forget to send the

forms (for example, if you are dead), there is a presumption that the transfer is not exempt. (I.e. that you are not dead.)


Title CompaniesTitle Companies Need Certainty Need Certainty

Title insurance insures that no tenants have any rights (i.e. to purchase the property) and that the purchaser has clean title.

Need to know if tenants have exercised rights, or have rights lapsed because of deadlines.

DCRA supposed to issue a form signifying whether any notices from tenants have been received.

No forms designed by DCRA yet.


Time Frames:Time Frames:Law versus Task force: 1 Rental UnitLaw versus Task force: 1 Rental Unit

Current Proposed

Response to Offer of Notice

30 days 15 days

Negotiation 60 days plus 15 days right of first refusal

30 days + 15

Time to Close 60 days plus 30 days if financing needs it

same

Maximum 190 days 90-105


Time Frames:Time Frames:Law versus Task force: 2-4 UnitsLaw versus Task force: 2-4 Units

Current Proposed

Response to Offer of Notice

15 days jointly, + 7 days indiv.

30 days

Negotiation 90 days plus 30 if not jointly plus 15 days right of first refusal

90 days + 15

Time to Close 90 days plus 30 days if financing needs it

90-120

Maximum 277 days 225-255


Task Force RecommendsTask Force Recommends

Single Unit Class 2-4 5-21 More than 21 units


ResourcesResources

dcgis.dc.gov Then Real

Property





DC Site (top) vs. Google EarthDC Site (top) vs. Google Earth


NewsletterNewsletter

www.JacksCamp.com [email protected] Roy Kaufmann

http://www.jackscamp.com/

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Roy L. Kaufmann, Jackson & Campbell, P.C. GCAAR 2006 Legislative Update Roy Kaufmann.

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