October 2019 Newsblog

September/October are always fun months and it’s not because school started (Boo!) and Halloween treats are overwhelming the little kids (Double Boo!) September is the month in which California’s legislative year is done and October? This is the month we wait expectantly to see how the Governor will dispose of the hundreds of bills that are placed in front of him. Which are vetoed and which are signed into law that will make our lives better or worse? Some may think otherwise, but to me, here are some interesting bills that will have a great effect on us or the economy or both. 

AB 1482 – Statewide residential units rent control has been signed into law amidst some fanfare and it will have consequences for investors! Our state is the second state to have statewide rent control (Oregon is first) and starting in 2020 the rent cap will be 5% per year plus regional cost of living increase. This will not affect units over 15 years old, single family homes or condominiums which are not owned by corporate entities so it is geared toward multifamily projects. The bill contains another important component – eviction. Eviction will be allowed only with “just cause” for tenants renting the unit 12 months or more. Here is an article with a layman’s description and the actual bill if you are into legalese. It should be noted to property managers that comparisons should be made between existing local city ordinances and the new law. The tougher law/ordinance will prevail (of course).

AB 1763 – The Density Bonus law changes city, counties and municipality density laws and allows for increased units (the bonus) to the project if the project adds additional affordable housing units to its plan. Along with AB 1482 and other bills, these are all efforts to address California’s affordable housing issues. Click here for the actual bill. We are waiting to see if the Governor will sign.

AB 5  – This Independent Contractor’s bill was signed and it codifies the Dynamex vs Superior Court decision of 2018. Workers are presumed to be an employee unless the hiring entity satisfies a three-factor test, referred to as the “ABC Test”. Under the test all three of these conditions must be met in order for the worker to be considered an independent contractor:

• A: The worker is free from the control and direction of the hiring entity in connection with the performance of the work; and
• B: The worker performs work that is outside the usual course of the hiring entity’s business; and
• C: The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

This bill has huge consequences for certain segments of the labor force and the companies that they operate under. But, like any legislative bill, there are carve-outs and exemptions for special categories. For instance – doctors, accountants, certain professional services, certain construction subcontractors, even hairdressers/barbers are exempt and, in particular, so are real estate agents. The text of the bill may be found at this link.

The most affected? Those in the gig economy (a new phrase enters our lexicon!), like drivers working under Uber, Lyft, and truck drivers. Uber and Lyft are not giving up without a fight; they are putting a $60 million commitment to drive a 2020 ballot  initiative. Yes, they are not going down easy. Fight, fight, fight! 

APPRAISAL MINIMUM THRESHOLD RAISED

I am struggling with this. Is this good news or is it bad? A difficult question with many scenarios to consider. A few years ago the appraisal threshold was $250,000. Now they have raised it to $400,000 . Properties under that new threshold will not require appraisals unless the loan to be obtained is a federally insured or guaranteed one, like FHA, VA, Fannie Mae, etc. Instead, the financial institution will need an “evaluation”.

Yes, property values have appreciated considerably but not all over the country. Some parts of the country $400,000 can be considered high end. Here’s my struggle: when underwriting conditions are relaxed or eliminated, what sort of abuses of the system will we see? Apparently all the government agencies signed off so they must not be too worried. However, the way I look at it, there is a reminder that although there were many reasons for the economic crash 10 years ago, lax real estate underwriting guidelines was definitely a contributing factor. Here is a link to this news and why do I feel like such a gloom and doom soothsayer?

HOW iBUYER/iBUYING IS CHANGING THE MARKET:

I reported on this new “trend” in July, and it is picking up lots of steam. First, what is this deal with the “i” in front of the word? According to this article on the Old Republic Title Company website, “i” stands for “instant”. So, instant Buyer/Seller =  instant gratification. 

A refresher course for those who did not see my July report: iBuyer is the emerging sub-industry of the real estate sale/investment industry. Mind you, it’s not for everyone so watch that bandwagon; you may fall off and hurt yourself. It requires substantial capital investment upfront and a good algorithm software program in the backend that can do the profitability calculations. 

Here’s how it could work: the real estate investment company buys their client’s existing property (1st property) at their offering price directly in a quick transaction, freeing up the cash equity immediately for the purchase of their next home. Next, the company does a fast purchase of their client’s next property (2nd property). They help them get a new loan and then sells them the 2nd property (at their offering price). The company also cleans up the 1st property and “flips” it. With the funds available to do the buy and buy, the investment company “instantly” buys and sells 2 properties for one client (plus gets the loan). What they need is the algorithm which can figure out if the properties and clients qualify for such a swap and how much money the company can make. See? iBuyer or iBuying. 

I am not sure which fintech company came up with this crazy idea, maybe Zillow, as Zillow has become a big player in this iBuyer market. They are partnering with big homebuilders to put together a program whereby the homebuyer can sell their existing home to Zillow but stay there for as long as eight months while their new home is being built.

SAN FRANCISCO IS THE MOST EXPENSIVE RENTAL MARKET

Nothing new there. We all know that San Francisco is possibly the most expensive rental market city in the nation. According to the article, the difference in rent on a one bedroom rental in the #1 city on the list (SF) to the 25th one (Philadelphia, PA) is a whopping $2,350.00 after-tax monthly payment difference. 

Into this mix we find one iBuyer company – ZeroDown, in the Bay Area trying to find solutions to place consumers into purchases of their own, with zero downpayment. Really?? Are we now serving doctored brownies? Here’s the game plan: the company buys the home for the consumer, rents it to them and the monthly rent becomes the tenant’s downpayment for their future purchase of the property. Here is an article describing their concept. I can see many, many pitfalls, but it is a concept that , if nothing else, will draw attention. One of the first areas of concern: Their funding at this time is $30 million, how many San Francisco homes will this buy? They will have to find some major investors willing to invest into this concept to make it worth their while as the turnaround time to sell one unit and make that profit may be years.

Certainly not the only company on this bandwagon, you can also check out another company who has, more or less, the same type of offer – Divvy Homes.

This industry is just going crazy!  Like I said, “Brownies.” 

RANSOMWARE ATTACKS OR WHEN TRICK OR TREAT COMES EARLY

A couple years back, when it was still not that “popular”, our company was hit by a ransomware attack. October is National Cybersecurity Awareness Month and so we are publishing our article about our personal experience and the hard earned lessons. You can access the article here: and we ask that you pass it on to bring awareness. 

The two most important things to keep in mind are:

1. Be very careful what links you are clicking on, and
2. Back up your data and work daily and store the backup in a safe place.

Don’t minimize or marginalize the repercussions. A recent CNN article headlines: “In the last 10 months, 140 local governments, police stations and hospitals have been held hostage by ransomware attacks“. Unlike hacking into a credit card or retail store database, when local government infrastructure is brought down, everyone’s daily lives in the communities can be affected.

OTHER CYBERSECURITY REMINDERS:

Clicking on a link that looks innocuous may open the door to a ransomware attack. Likewise, it can also bring a hacker into your system who would then take over your email account and impersonate you. But there is a simpler way without them hacking into your account. Phishing and similar looking email addresses are common and don’t require the brute force of hacking into your system. Here is one article to remind us that all it takes is the change of one letter. What is the difference between example@ABCtitle.com and example@ABCtltle.com? It could be a world of difference if you were the recipient of an email from that hacker.

In much the same vein, the Consumer Financial Protection Bureau has also published their public service announcement regarding escrow fraud scams. We battle this fraud day in and day out so my industry is more than happy to spread consumer education every chance we get. 

YOU HAVE QUESTIONS, WE HAVE ANSWERS!
VIVA ESCROW Q & A SEGMENT
(We get some great questions left on our website!)

This month’s topic: Supplemental Taxes – how are they calculated? 
(Follows our Q&A from last month)

Supplemental taxes are issued by the County Assessor’s office. It is a simple yet hard to grasp calculation for many taxpayors: Supplemental taxes are calculated as 1.25% of the new transfer/purchase value. With that yearly tax amount you subtract the original tax amount and the difference is what will need to be paid if you owned it the whole year. For partial year you divide the amount by 365 for a daily rate and calculate the number of days from when the purchase took place to the end of the tax fiscal year. Here is an example:

New purchase value = $500,000

Full year supplemental taxes at 1.25% = $6,250

The original yearly tax payment amount = $3,500

Difference between new and old = $2,750

Per day rate on the difference is $7.54

Multiply $7.54 per day from day transaction transferred (closing date) to the end of the fiscal year which is June 30th and, voila! The supplemental taxes that have to be paid.

Simple! Not! 

There are other considerations in the calculation.

• What part of the year did your purchase escrow close? 
• Were the original taxes paid? 
• What if the Seller flipped the property right before he sold it to you? What happens to his supplemental taxes and who is responsible for its payment?

On and on….

Different scenarios call for different concerns and different answers. You have questions? We maybe have some answers! (When it comes to taxes, answers are tricky, tricky!)

MY FUNNY FOR THE MONTH

I know you have been waiting for my monthly funny. You probably even went down all the way to the bottom of the article first, before reading anything else, right? Let me not disappoint you.

When in doubt, “Google it”. So Google is my friend. When I need step-by-step pictures I “YouTube it”. So YouTube is my friend also. I have very, very good friends. They have yet to let me down. So I was having a little problem with my GoPro the other day and decided to Google it. Not quite understanding the techie terms I then decided to YouTube it also. When I did that I came across this little skit which I felt described my feelings about tech in a nutshell. https://www.youtube.com/watch?v=kAG39jKi0lI

Could not stop laughing!

**********

In commemoration of Halloween here are three reasons why women sometimes think pumpkins are better than men:

They are always on the doorstep waiting for you,

 If you don’t like the way he looks, you just carve up another face.

 If he starts smelling up your place, you can just throw him out.

Happy Halloween! 

49 days to Thanksgiving

75 days to Christmas

(who’s counting.)

Juliana Tu, CSEO, CEO, CBSS, CEI, SASIP
“Escrow is my FOREMOST language!”

The opinions expressed in this blog are solely the author’s.