NEW LAWS AFFECTING REAL ESTATE FOR 2014
Originally Published December 2013
At this time every year, reports start coming out about the many new laws taking effect next year. Here in California, nearly 1,000 new laws will start up in 2014 many of which will directly affect property owners and real estate professionals.
Here are highlights of some of the most important measures and significant changes of which you should be aware.
1. IRS AND CA EXTEND DEBT FORGIVENESS TAX RELIEF
Since neither Congress nor the CA Legislature passed any extension of Debt Forgiveness Tax Relief beyond its 12/31/13 ending, everyone thought that tax relief was dead. If so, the financial damage from a short sale or foreclosure would become much greater. But now the IRS and California tax officials have ruled that any short sale of a 1-4 unit residential property in California will be exempt from tax on the unpaid debt. Now, if they would extend this to foreclosures as well, the entire upside-down market could clean up faster.
2. LENDERS & BORROWERS FACE MAJOR CHANGES WITH NEW LENDING RULES
On January 10, 2014, several new lending Rules will take effect as a result of the Dodd-Frank Wall Street Reform and Protection Act. Here are the key ones to watch:
(1) Qualified Mortgage (QM) Rule – purpose is to reduce risk in the lending industry by imposing limits on risky loan terms such as interest-only and negative amortization as well as tightening underwriting standards.
(2) Ability to Repay (ATR) Rule – purpose is to protect consumers from obtaining loans that they cannot afford by requiring documentation and proof of income and assets. While you would think that lenders would do this anyway, the housing bubble and market crash were the result of lenders dropping verifications in order to make more loans.
(3) Qualified Residential Mortgage (QRM) Rule – Similar to the QM Rule, the purpose of QRM is to improve the quality of loans being sold on the secondary mortgage market.
For a good analysis of these changes, see Brandon Cornett’s article for the Home Buying Institute: New Mortgage Rules and Other Changes Coming in 2014.
3. NATIONSTAR AND AUCTION.COM RULES CLARIFIED
One of the most frustrating changes in the real estate market has been the requirement by Nationstar that all short sales seeking its consent must be posted on auction.com for 3 weeks “to verify that the loan investor has received the best price”. While this practice would appear to violate the contract rights of buyers, sellers, and their real estate agents, California Bureau of Real Estate (BRE) which regulates real estate activities in CA has ruled that this practice does not violate any laws. If a higher bid is received in the auction, the original buyer has an opportunity to top that bid. Otherwise the auction bidder gets the property. California Assn. of Realtors has advised its members to contact Nationstar immediately upon listing a property with a Nationstar loan.
4. HOME IMPROVEMENTS BECOME MORE COSTLY
Starting January 1st, any improvement or alteration to a single-family home more than 20 years old will trigger a 2009 state law mandating the installation of water-saving toilets, shower heads and faucets. The upcoming rule is the the latest government attempt to improve water conservation. Since the 1990s, new homes have had to include various water-saving features. Over subsequent years, the Legislature has approved laws setting low-flow standards for toilets, faucets and other products. Officials said the upcoming rule will, at relatively low cost, make a huge dent in the states urban water consumption and help the state meet a goal to reduce water use by 20 percent by 2020.