FLOOD INSURANCE CHANGES
Property owners in flood zones are likely to get relief under a bill recently signed by the President. Under the bill (1) sales will no longer trigger immediate premium increases, and (2) properties that complied with prior flood map requirements will be grandfathered, which would likely mean that insurers may not require elevation certificates at sale to obtain flood insurance.
In response to homeowners around the country experiencing large increases in flood insurance premiums and to the increased costs at sale due to the Biggert-Waters Flood Insurance Reform Act of 2012 (“Biggert-Waters”), both the House (H.R. 3770, The Homeowner Flood Insurance Affordability Act, “Menendez-Grimm”) and Senate (S. 1926) passed bills rolling back some of the Biggert-Waters provisions. Although the Senate bill was broader, the Senate agreed to go along with the House version.
Other provisions of the Menendez-Grimm bill are: It limits yearly premium increases to 15% for nine FEMA property categories, no individual policy increases of more than 18% for most properties built after 1975 and 25% for older properties. It provides refunds of premiums to homebuyers after Biggert-Waters effective date. It provides for an annual $50 surcharge for residential policyholders and a $250 surcharge for businesses and second homes. It strives to reach a goal where most residential policy holders have a premium no greater than 1% of the value of coverage (i.e. $2,000 for a $200,000 policy). And it establishes a Flood Insurance Advocate within FEMA to, among other things, answer current and prospective policyholder questions about the mapping process and flood insurance rates.
BROKER’S MLS STATEMENTS
New Case: No liability for listing broker’s accurate and true MLS Statement. However, buyer’s broker’s advice to client to “check [the report] out” is insufficient to avoid liability.
This case involved the sale of a vacant property in an earthquake zone. The seller’s broker stated in the MLS “This parcel is in an earthquake study zone but has had a Fault Hazard Investigation completed and has been declared buildable by the investigating licensed geologist. Report available for serious buyers.” All of which was true. The problem, however, was that the report was from 1982 and in the interim were the Loma Prieta and Northridge earthquakes; much had changed in the building standards from then to the sale of the property in 2006. After closing, the buyer found that he could not build. He sued his broker, the seller and the seller’s broker, alleging that omitting the date of the report was a misrepresentation. The trial court found the buyer’s broker liable for breaching the fiduciary duty to the buyer. The seller and the seller’s broker where held not liable.
Buyer appealed only as to the seller’s broker. Following prior case law, the court found that, while a real estate broker owes their own client a fiduciary duty, they owe third parties who are not their clients only those duties imposed by regulatory statutes. These duties include honesty, fairness and full disclosure as well as the Civil Code section 1088 responsibility for the truthfulness of statements in the MLS. The court found that the statement was in fact true. There was a report. The geologist did find the parcel buildable. And the fact that the MLS did not state that the report was from 1982 was cured by the report’s availability, especially so when the report was dated May 20, 1982 on its face. The court held that the seller’s broker had met the requirements of honesty, fairness, and full disclosure.
The buyer’s broker, however, did not fare so well. The buyer’s broker merely gave the buyer a copy of the report, telling the buyer to “check it out.” The court states that the buyer’s alleged injury arises from the failure to investigate and understand the implication of the information that the report dated to 1982, a failure that the trial court found was the buyer’s broker’s responsibility, and not from the failure of the seller’s broker to provide information. Certainly something beyond “check it out” was required of the buyer’s broker. Saffie v. Schmeling, filed March 7, 2014, Fourth District, Div. Two, 2014 S.O.S. E055716 http://www.metnews.com/sos.cgi?0314//E055716
TDS AND MIXED USED PROPERTY
New Case: A mixed use property with commercial and residential 1 to 4 units requires a TDS.
The question: If a property is mixed use containing not more than four residential units and one or more commercial units (the property here had one commercial building and a residential duplex), must the seller deliver a TDS? The answer is yes. In Richman v. Hartley, filed March 20, 2014, Second District, Div. Six, S.O.S. B245052 http://www.metnews.com/sos.cgi?0314//B245052, the court, for the first time, clarifies a question about the use of a TDS. In reality it is something that most REALTORS® already incorporate in their practice.
In this case the buyer and seller used a commercial contract (not a C.A.R. form) and the seller did not deliver a TDS. There was also a lease and some lapse of time between the buyer entering the lease and the purchase contract. The buyer/tenant decided not to proceed with the purchase and cancelled based upon the seller’s failure to provide a TDS. The seller sued stating that the TDS is required only when the property is exclusively residential and, moreover, the real essence of this purchase was commercial not residential. The court dispensed with both arguments. If the property contains at least one but not more than four units, notwithstanding what else the property may contain, the seller, unless otherwise exempt, must provide a TDS. The requirement is non waivable by the buyer and, if no TDS is delivered by the seller, the buyer may cancel.