ENTITIES AND ELECTRONIC SIGNATURES; CFPB DELAYS NEW LOAN DISCLOSURES; U.S. SUPREME COURT ENDS CHAPTER 7 LIEN STRIPPING AND UPHOLDS DISPARATE IMPACT CLAIMS IN FAIR HOUSING LAW; LEGAL LIVE WEBINAR: ARBITRATION OF REAL ESTATE DISPUTES; EVERYDAY ETHICS WEBINAR: CODE OF ETHICS ARTICLE 2
Entities and Electronic Signatures:
In many of today’s real estate transactions at least one of the parties is an “entity”, that is an estate, a trust, a corporation, an LLC or someone signing for another using a power of attorney. It is important from both the seller’s and buyer’s perspective that if there is an entity it is properly formed and the person signing for the entity has the authority to do so. Proper signatures help to set expectations and to assure that the person signing is not personally liable to perform under the contract.
To further this important goal, the Representative Capacity Signature Disclosure (C.A.R. Form RCSD) was incorporated into all C.A.R. purchase agreements. Using the RCSD, the purchase contract provides several things:
- The RCSD will be given to the other party
- The entity already exists
- Proof of authority will be provided within 3 days, and
- Once the RCSD is signed formally, all other documents can be signed or initialed in a less formal manner
Signing the RCSD and the purchase contract using digital signatures has generated many Hot Line calls. How do we get both the entity name and the signer’s name right? In response zipForm® has a tool that can help. Click here to go to the instructions, but basically the steps are: 1 – fill out the RCSD, 2 – fill out the purchase contract with the entity’s full name, and 3 – click on e-sign and delete the entity name and replace it with the signer’s name.
Although written for use with Digital Ink®, the process works with DocuSign® as well as long as you have integrated DocuSign® into zipForm®. For more help please call Customer Service, 213-739-8227.
CFPB to Delay New Loan Disclosures:
The CFPB Proposes Amendment to Delay New Disclosures to October 3; CFPB Releases a New FACT Sheet.
Citing a just-discovered administrative error, the Consumer Financial Protection Bureau proposed an amendment that will delay the effective date of the Know Before You Owe rule until October 3, 2015.
This well-received announcement followed closely CFPB director, Richard Cordray’s, June 3rd response to Congress that the CFPB will take into account “good faith” attempts at compliance with the new TILA/RESPA Integrated Disclosure.
Many had expressed concern that there is no work-in period when these complicated new rules take effect (now October 3rd). In his response Mr. Cordray clarified that his statement of recognizing a lender’s good-faith efforts at compliance is intended to ease some of the concerns that the CFPB has heard. The delayed effective date should help as well.
Further attempting to address concerns, the CFPB released a new fact sheet explaining the limited circumstances when the new rule requires that an additional three-day review period be given to the consumer. To quote from Mr. Cordray’s letter, “Only three specific changes require an additional three-day review period: (1) an increase in the APR of greater than 1/8 of a percentage point for a fixed rate loan or 1/4 of a percentage point for an adjustable rate loan (decreases in the APR based on a decrease in the interest rate or fees charged do not trigger a delay); (2) the addition of a prepayment penalty; and (3) changes in the loan product, from a fixed-rate loan to an adjustable rate loan, for example. Importantly, no other changes require a delay for re-disclosure.” (Emphasis in original.)
Concerns that Lender Will Not Share Information
Some have also expressed concern that lenders will be so uncertain about CFPB oversight that they will not be willing to share borrower information with the borrower’s real estate broker. To alleviate this as a concern, buyer’s agents can have the buyer give them authorization to communicate with the buyer’s lender using the Authorization to Receive and Convey Information (C.A.R. Form ARC).
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U.S. Supreme Court:
Court Ends Chapter 7 Lien Stripping
From time to time the Hot Line receives questions about the possibility of voiding or “stripping” a lien in a bankruptcy proceeding when the value of the property has fallen below the amount of the lien. Usually this would only apply to a second lien when the value of the property has fallen below the value of the first mortgage; the second lien is now “unsecured” and can be stripped or voided. This process is allowed in a Chapter 13 reorganization but the lien is stripped only if the debtor completes the bankruptcy plan.
However, in most of the country, a debtor could not use the lien stripping process in a Chapter 7 liquidation. Only the 11th Circuit (Alabama, Florida, Georgia) allowed this if the lien was totally unsecured, holding they were bound by 11th Circuit precedent. The 11th Circuit had found a distinction in a 1992 Supreme Court case, Dewsnup v. Timm, 502 U.S. 410 (1992), where the Supreme Court held that a Chapter 7 lien that was only partially underwater could not be “stripped” or voided. Following an unpublished opinion in its own Circuit, some courts in the 11th Circuit had found that a wholly underwater lien could be stripped in Chapter 7.
The Supreme Court, in Bank of America, N.A. v. Caulkett, No. 13-1421, was asked to resolve the issue.The Supreme Court held that Dewsnup applied to both partially underwater and fully underwater liens and both were “allowed secured claims” under §§ 502 and 506 of the Bankruptcy Code and could not be voided or stripped in Chapter 7. Even though the Court recognizes that Dewsnup has been criticized since its inception, it points out the debtors were not asking that it be overruled, only that it be limited to a partially underwater lien.
While this case may not have a great impact in California, it does make it clear that a debtor who wants to strip underwater liens cannot use Chapter 7.
Court Upholds Disparate Impact Claims in Fair Housing Law
A divided U.S. Supreme Court (5 to 4) found that the Fair Housing Act (42 U.S.C. § 3601 et seq.) prohibits what might otherwise be viewed as a neutral practice but which has a disparate impact on minorities even though there might be no intentional discrimination. Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project, Inc., No. 13-1371. Using a long-standing legal argument, but one which had never been addressed directly by the Supreme Court, Inclusive Communities Project, Inc., claimed that, notwithstanding that there was no direct intent to discriminate against minorities, the Texas Department of Housing and Community Affairs allocation of tax credits to developers had a disparate impact on minorities and was thus prohibited under the FHA.
In this case the plaintiffs were allowed to use statistics to show that the Department’s policy had a negative impact on black residents. Justice Kennedy’s majority opinion found that congress had affirmed prior judicial interpretation that the FHA’s language included claims of disparate impact and that disparate impact claims are central to the FHA’s purpose of banning discrimination because of race. Such claims “counteract unconscious prejudices and disguised animus that escape easy classification as disparate impact.”
Yet the Court states there are limitations to disparate impact claims. Plaintiffs must “point to a defendant’s policy or policies causing that disparity”, and defendants in disparate impact cases must be given “leeway to state and explain the valid interest served by their policies.” The opinion ends by acknowledging “the Fair Housing Act’s continuing role in moving the Nation toward a more integrated society.”
Legal Live Webinar: Arbitration of Real Estate Disputes:
The California Residential Purchase Agreement and Joint Escrow Instructions (C.A.R. Form RPA) provides an opportunity for the buyer and seller to agree to arbitration. The perceived benefits of arbitration are a less expensive, faster, and private process. Join C.A.R. Attorney Neil Kalin on Tuesday, July 7th from 1:30 to 2:30 p.m. for a webinar exploring what it means for the parties when they agree to arbitrate their dispute.
You can sign up for this webinar at http://www.car.org/legal/LegalWebinars/live/. Space is limited and may fill up fast. You may want to sign up as quickly as you can. As soon as you register you should immediately receive a confirmation email which you will need to attend the webinar.
Everyday Ethics Webinar: Article 2:
Article 2 of the Code of Ethics requires REALTORS® to avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction. In this webinar, C.A.R. Attorney Brian Polinsky will explain the key concepts you need to know about Article 2 and will provide examples of specific real estate practices that violate Article 2. The webinar will be conducted on Wednesday, July 8th from 1:30 to 2:30 pm.
You can sign up for this webinar at http://www.car.org/legal/LegalWebinars/Ethics/. Space is limited and may fill up fast. You may want to sign up as quickly as you can. As soon as you register you should immediately receive a confirmation email which you will need to attend the webinar.