Montana Board of Realty Regulation Real Estate Licensee Core Course 2012.

Montana Board of Realty Regulation

Real Estate Licensee Core Course 2012

2011 Legislative Update

• Senate Bill 146: A bill to prohibit or nullify transfer fees established as a covenant. – Does not affect condo or homeowners association

fees or charges for administrative functions. – Does not affect easements over state lands. – What about recapture fees payable to developers

for installation of water systems in subdivisions? • Developer fronts costs of system with intent to be

reimbursed by water company over 40 year term.

Montana Board Of Realty Regulation Core Course 2012


• Senate Bill 256: Bill addresses several issues that were prior legislative oversights. – No prior ability for supervising broker to substitute

in another supervising broker in case of illness or vacation;

– No ability to address transfer of licenses of sales people if supervising broker was deceased.

– Grants authority to Board of Realty Regulation to promulgate rules for substitution of supervising broker. Montana Board Of Realty Regulation Core Course

2012

• Senate Bill 256 (cont): Bill addresses several issues that were prior legislative oversights. – Personal transaction statute, 37-51-309 MCA, was

understood to permissive not mandatory. Broker could either be involved in sales licensee’s transactions or not. Language of statute mandated that supervising broker could not be involved in sales licensees transactions.• For certain offices this restriction would pose a problem

for sales licensees to market their property on MLS.




• House Bill 460: Modifies revenue assessment statute to clarify that townhouses are not to be treated as condominiums.

• Provides that townhomesmaybe created if owner filesdeclaration. If declaration filed – project is exempt from subdivision review.



• LC 2030\ HB 494: Amends existing exemption to subdivision and platting act. Provides that sale or rent or lease of one or more buildings, whether existing or proposed, located on a single parcel of land and under single ownership is not a division of property requiring subdivision review. – However, sale, lease or rent, must not violate existing

zoning. – Immediate effective date. VETOED



• SB 423. Montana Medical Marijuana Act.• Remember – In the State its legal but under

Federal law its not…..– HUD legal memorandum. • If the rental units are part of a federally funded housing

project you may not rent to a cardholder. • If you find that you have already rented to a cardholder

in a federally funded housing project do you have to evict them? – Don’t have to. Its your option.



• SB 423. Montana Medical Marijuana Act.• You have a multifamily dwelling for rent. Can

the cardholder smoke on premises? – Cardholder cannot smoke where the smoke

significantly adversely affects the health, safety, or welfare of children;

– Nor can they smoke “in plain view” or in a place open to the general public.



• SB 423. Montana Medical Marijuana Act.• You operate a real estate brokerage office or a

property management company. Your employee announces that he or she is a cardholder. Do you have to accommodate their use of marijuana? – No.



• SB 423. Montana Medical Marijuana Act.• Do I have to let the cardholder grow or

manufacture marijuana on the premises? – No.

• Do I have to permit the cardholder to use marijuana on the premises whether by smoking or otherwise? – No.



• SB 423. Montana Medical Marijuana Act.• But the burning question is – do I have to rent

to a cardholder? – Is medical marijuana use covered under the

American’s with Disabilities Act? • Montana Court Decision(s) have any effect on

the foregoing? – Judge Reynolds decision.


MT SUPREME COURT DECISIONSINVOLVING REAL PROPERTY ISSUES

Crestview Apts. v. Summers, 357 MT 123.• One year written lease (14 pages –small print);• Two months into the lease tenant purchased

home and terminated lease. Landlord accelerated monthly payments and sued to collect.

• Lease agreement contained provision that if landlord sued, tenant had to pay attorney’s fees and costs.



• Supreme Court determined that Security Deposit Act does not allow for acceleration of rents not yet due.

• Lease provision that requires tenant to pay landlords attorneys’ fees is unconscionable under Landlord Tenant act.

• Lease was held to be void in its entirety.



• Frame v. Huber, 2010 MT 71.– Easement by necessity case. If all parcels over

which access is needed were in common ownership at one time, purchaser would have easement by necessity (implied grant) from owner.

– Property at issue was bisected by Dearborn river. Court determined that since bed of navigable stream is owned by state there could not be common ownership of parcels.



• Leisz v. Avista Corp., 2010 MT 105.– District court determined that claimant did not

have a prescriptive easement. Supreme Court reversed and returned case to district court.

– On remand, District court found that there was a prescriptive easement, but that it had been abandoned because holder of prescriptive easement used alternative route.

– On second appeal Supreme Court again reversed on theory that mere non-use does not equal abandonment. Consistent with existing law.Montana Board Of Realty Regulation Core Course

2012


• Mustang Holdings v. Zaveta.– Developer purchased acreage for purposes of

creating subdivision. Remnants of old irrigation ditch exited on property at time of purchase. Developer checked and determined that water right had not been established with DNRC.

– Ditch rights in Montana previously thought to be secondary to holding water right.

– Montana Supreme Court determined that Zaveta held easement for ditch even though she did not have a water right. New law. Montana Board Of Realty Regulation Core Course

2012


• Badley v. Morris. – Prescriptive easement case. PE require open,

notorious, use adverse and hostile to the rights of the true owner for 5 years.

– Use began as permissive but was argued that it became hostile later on. Question was when was notice of the hostile use “brought home” to the owner?

– Case is consistent with existing law and points out problems frequently encountered in this area. Mere use is not basis for prescriptive easement claim. Montana Board Of Realty Regulation Core Course

2012


• Fehrs v. Schmidt, 2010 WL 4490967. – Parties owned adjacent parcels. Each had

improvements that encroached on the other’s land. One party had part of their improved yard on the other’s land; the second party had a garage which encroached.

– Garage owner claimed entitlement to have the structure remain on grounds of • Adverse possession; • Prescriptive easement. →


MT SUPREME COURT DECISIONS

• Fehrs v. Schmidt, continued– Adverse possession• Open notorious possession adverse and hostile to the

rights of the true owner for 5 or more years and must have paid taxes on property;

– Prescriptive easement• Open notorious use adverse and hostile to the rights of

the true owner for 5 or more years. • Understood to require a transitory not static use.

– Parking, driving, walking, etc.

– Court held garage use was prescriptive easement. – Landmark case in Montana.



• Steed v. Solso, 2010 MT 264.– the Supreme Court affirmed a pedestrian

easement allowing access to a lake, rejecting a claim that the easement had been “overburdened” when the grantors had subdivided their property and then sold the lots to additional owners.

– Case illustrates that scope of easements are often difficult to determine. Licensees need to exercise caution when discussing what buyers may do with property. Montana Board Of Realty Regulation Core Course

2012

MT SUPREME COURT DECISIONSINVOLVING REAL PROPERTY ISSUES• Ashby v. Maechling, 356 Mont. 68.• An “easement by necessity” case. Question was if

easement originated in 1930’s, what is scope – horses and wagons only?

• Court determined that modern vehicle access and utility services may be allowed as part of an easement by necessity even though the easement arose before the general use of such improvements.



• Conway v. Miller, 2010 MT 103.– Line drawn on subdivision plat had statement

“building restriction line” written on left side. Neighboring lot owners attempted to enforce no build restriction against owner of garage.

– Split decision of court. Majority permitted neighbors to enforce and required removal of garage (remember result of prior garage case?).



• Hall v. Hall, 2010 WL 4511091. – Buyer’s engineer was not allowed to testify as to

the standard of care for real estate brokers in Montana.

– Party to lawsuit (buyer) was not permitted to testify as to the standard of care for real estate licensees.

– Supreme court upheld district court’s ruling that engineer and party did not possess necessary qualifications to testify as experts as to broker’s obligations. Montana Board Of Realty Regulation Core Course

2012

2009 MT SUPREME COURT DECISIONINVOLVING A REAL ESTATE LICENSEE

• Andersen v. Schenk, 2009 MT 399.– Case involves a somewhat novel approach to a

claim for commission. – Broker did not have a written listing agreement

with owner. Verbal discussions between owner of the property and broker as to what price the owner wanted and what commission he would pay if a buyer willing to pay desired sum was obtained. Broker did not procure the party who purchased the ranch and the buyer did not pay the price for the ranch that the broker and seller discussed. →Montana Board Of Realty Regulation Core Course

2012

2009 MT SUPREME COURT DECISIONINVOLVING A REAL ESTATE LICENSEE

• Andersen v. Schenk, continued.• In Montana, to claim commission you must have a

written listing agreement with the seller. Attorney’s for broker took seller’s deposition during litigation wherein seller acknowledged that he had verbally agreed to pay a commission if the property sold for $10 million. Broker claimed the acknowledgement in the discovery proceedings satisfied the ‘written’ requirement.

• Court struggled with theory but decided that the broker was not entitled to commission in any event since he never procured buyer who purchased for $10 million (ranch sold for @6 million).Montana Board Of Realty Regulation Core Course

2012

Federal Court Case re E & O Insurance

XL Specialty Ins. Co. v. Patrol Helicopters, Inc., Case had been in litigation for over one year and was approximately 4 months from trial when insured gave notice of claim. Carrier denied coverage. Court held there was no prejudice to carrier by late notice. Carrier obligated to defend. - This is a significant case for real estate licensees in Montana. Montana Board Of Realty Regulation Core

Course 2012

Changes to the Regulations of the Board of Realty Regulation.

• Review handout of proposed or adopted changes to Board Regulations.


Trust Accounting

• Auditor’s handout. • Offices or firms having more than one broker may

utilize a single trust account.• A broker may delegate authority for maintenance of

a trust account to a designated broker with whom the broker is employed or associated. Delegation shall not relieve either broker from responsibility for any failure to comply with these trust account requirements, whether by the delegating broker or the designated.


Trust Accounting

• Broker trust accounts may be maintained in interest-bearing accounts with the interest payable to the broker, principal, third-party, or any other person, as may be designated by agreement. Interest payable to the broker shall be identified by agreement as consideration for services performed.


IF A BROKER ELECTS TO HOLD TRUST FUNDS, THE BROKER MUST COMPLY WITH THE FOLLOWING:

• All monies, belonging to others and accepted by the broker while acting in the capacity as a broker, shall be deposited in an insured account at an institution located in Montana.

• The name of such account shall be identified by the words "trust account".


IF A BROKER ELECTS TO HOLD TRUST FUNDS, THE BROKER MUST COMPLY WITH THE

FOLLOWING:

• Trust funds shall be retained in the trust account until the transaction involved is closed or terminated. However, trust funds may be disbursed to the closing agent in anticipation of closing upon written agreement of the buyers and sellers. The broker must account for trust account funds at all times.



FOLLOWING:• At the client's instructions, trust funds may be

retained in the trust account although there is no purchase, lease, or rental agreement in existence, or when the transaction has been terminated.

• No payments of personal indebtedness of the broker shall be made from a trust account.

• Money held in the trust account which is due and payable to the broker must be withdrawn within ten business days after such money becomes due and payable to the broker.


FOLLOWING:



FOLLOWING:

A broker shall not be entitled to any part of the earnest money or other monies paid to the broker in connection with any real estate transaction as part or all of the commission or fee until the transaction has been closed or terminated. If there is a division of forfeited earnest money between the broker and seller, it shall be pursuant to a written agreement between them.


FOLLOWING:


Record Keeping

• Maintenance of a trust account shall include the broker or designated broker keeping at the broker or designated broker's office complete record of all funds received, in the following manner:

• A bank deposit slip showing the date of deposit, amount, source of the money, and where deposited.• Monthly bank statements are to be retained and kept

on file.• Trust account checks shall be numbered and all voided

checks retained. →


Record Keeping

• The checks shall denote the broker's business name, address, and should be designated as "trust account".


Record Keeping


Record Keeping

• A record which shows the chronological sequence in which funds are received and disbursed;

• For funds received, the record must include the date, the name of the party who is giving the money, the name of the principal, and the amount;

• The record of deposit must include the date, the name of the party who is giving the money, and the name of the principal.

• For disbursements, the record must include the date, the payee, and the amount;

• A running balance must be shown after each entryMontana Board Of Realty Regulation Core Course

2012

Record Keeping

• A record shall be kept to show the receipts and the disbursements as they affect a single, particular transaction. The record must include the names of the parties to a transaction, the date, and the amounts received. When disbursing funds, the date, payee, and amount must be shown. A running balance must be shown after each entry;


Record Keeping

• The trust account must be reconciled monthly.• Trust account records shall be maintained for five

years, (HUD projects – 20 years) from the date of receipt of any funds or property. →


Record Keeping


Record Keeping


Record Keeping

• The most common error found in BRR audits is the failure of the broker to keep a separate “personal funds” ledger. Only expenses related to the account may be deducted from the personal funds account.


Record Keeping

• All licensees shall ensure that all real estate funds which they receive are deposited in the broker's trust account or are delivered to the designated holder of the funds within three business days of the broker's or salesperson's (whichever is earlier) receipt of the money, unless otherwise agreed to by the parties.

• All required trust account records may be maintained electronically but must be maintained in a manner that permits auditing.


Short Sales

“Short sale”. The sale of a property where the encumbrances owed are greater than the unit’s fair market value.


Short Sales

Who are “parties” to a short sale? ◦The buyer and seller. You may need the lender’s consent to

reduce the amount owed, but the lender is not a party.

Three basic “assisted” short sales programs: ◦U.S. Treasury’s HAFA [Home Affordable Foreclosure

Alternatives]◦Fannie Mae◦Freddie Mac

Doesn’t mean that you cannot do a short sale with local lender or even seller financing.


Short Sales

This course is not intended to teach you how to do short sales. It is designed to alert you to red flags relative to short sale situations.

Has seller attempted a loan modification? ◦HAMP program or voluntary adjustment by

lender? HAFA program base document: http://weblogs.sun-sentinel.com/business/

realestate/housekeys/blog/HAFA%20SD%2003%2026%2010%20(2).pdf


http://weblogs.sun-sentinel.com/business/realestate/housekeys/blog/HAFA%20SD%2003%2026%2010%20(2).pdf




Short Sales

Supplemental directive: Provides excellent summary of program. When owners will

qualify, copies of documents used in program such as the ‘Short Sale Agreement’, Request for Short Sale Approval and details of time frames for various actions.

Red Flag Key elements: Property was 1-4 single family dwelling; Occupied by owner in last 12 months; Debt obligation is less than $729,750. Verifiable hardship

Note: loss of equity is not a hardship


Short Sales

How much time do you have to do a short sale? Lender will typically offer 120 time period in which to do short sale. Lender can authorize up to 12 months. Property must be listed with real estate

licensee. Listing agreement must be cancellable (to facilitate deed in lieu if short sale cannot be accomplished).◦Commission of up to 6% authorized


Short Sales

Things to be aware of: Buyer must not be related to sellers,

needs to be an arm’s length transaction.Short Sale Agreement will identify amount

lender is willing to accept to release encumbrance.

Up to $6,000 available to induce junior position lenders to release.

$1,500 payable to lender for working through program.


Short Sales

HAFA Process: $3,000 to owner\borrower for relocation.Buy sell must be submitted within 3

business daysLender to respond to offer in 30 business

days. Buy sell agreement does not bind either

party until the lender has accepted proposed transaction without changes.◦Note exception under Mortgage Assistance

Relief Services (MARS) rules.


Short SalesMontana Board Of Realty Regulation Core Course 2012

Mortgage Assistance Relief Rules. ◦Federal Trade Commission rules applicable to

entities or individuals who advertise or promote short sales or foreclosure assistance.

◦No advance fees;

◦Following are samples of MARS disclosures

Short Sales

Mortgage Assistance Relief Rules. Three types of disclosures required:

◦#1: General disclosure to public with licensee solicition:

“[Name of your company] is not associated with the government, and our service is not approved by the government or your lender;” and “Even if you accept this offer and use our service, your lender may not agree to change your loan.”


Short Sales

Mortgage Assistance Relief Rules. #2: Consumer specific disclosure :

“You may stop doing business with us at any time. Youmay accept or reject the offer of mortgage assistance weobtain from your lender [or servicer]. If you reject theoffer, you do not have to pay us. If you accept the offer,you will have to pay us [insert amount or method forcalculating the amount] for our services.”

“[Name of your company] is not associated with thegovernment, and our service is not approved by thegovernment or your lender;” and“Even if you accept this offer and use our service, yourlender may not agree to change your loan.”


Short Sales

Mortgage Assistance Relief Rules. #3a: When discussing Lender’s response:

You have to give your customer a separate written pagethat clearly and prominently says: “This is an offer of mortgage assistance we obtained from your lender [or servicer]. You may accept or reject the offer. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us [same amount youdisclosed upfront] for our services.”

Make sure the short sale addendum does not conflict with this statement.


Short Sales

Mortgage Assistance Relief Rules. #3b: When discussing Lender’s response:

You have to give your customer a separate one-page written notice from the customer’s lender or servicer that explains all material differences between the offer of mortgage relief you got from the lender or servicer and the customer’s current loan.


Short Sales

Mortgage Assistance Relief Rules.

For additional information on the MARS rules : http://www.ftc.gov/opa/2011/02/pdf/110210mars_business.pdf


http://www.ftc.gov/opa/2011/02/pdf/110210mars_business.pdf

http://www.ftc.gov/opa/2011/02/pdf/110210mars_business.pdf

Tax Issues with Short Sales

• CODI: Cancellation of Debt Income. – If proceeds of the loan were used to

purchase the property probably no tax on amount forgiven.

– If loan was refinance and money taken out, seller may be taxable on amount taken out.

– Risk reduction – owner should always consult their tax advisor.

– Any amount of the debt not being paid by the short sale must be deemed ‘forgiven’ to qualify borrower for not taxable treatment. Watch letters from lender. Does it say what you need it to say?


Deed in Lieu of Foreclosure

• Lender agrees to take property back rather than taking time and incurring expense of foreclosure;– Beneficial to seller• Credit standing• Less publicity in community• Faster result• Probably no further consequences to owner.


Deed in Lieu of Foreclosure

• Lender will not agree to take property back if there is a second or additional encumbrance. To do so would make the lender’s title “subject to” the formerly junior encumbrances.

• Owner cannot just deed property to lender. Lender must agree to process or deed is void.


Foreclosures in Montana

• Judicial or non- judicial. – Non-judicial frequently

referred to as a foreclosure by advertisement and private sale or “trustee’s sale”.

– Judicial is traditional “sheriff’s sale”.



• As to first position loan: – No deficiency whether

foreclosed by Trustee’s sale process or Judicial proceeding.

• As to second or subsequent loans:– Their security position

against the property goes away, but lender can sue on the note.

Single family residential dwelling – owner occupied as principal residence



• As to second or subsequent loans:– Their security position

against the property goes away, but lender can sue on the note.

– For how long? 8 years from date of last payment or starting date of note if no payments ever made.

Trustee’s sale



• If the foreclosure is done via the judicial process and does not involve a first position loan on an owner occupied single family dwelling, the lender may seek a deficiency.

• If the foreclosure is done by the trustee’s sale process, a deficiency judgment cannot be obtained against the borrower.


Rights of RedemptionCan you pay what is owed and save your home?



• Trustee’s Sale: – Can cure default up to time of sale by paying

delinquent payments and costs of foreclosure (not a redemption as sale has not occurred.

– Once sale has occurred, no right to recover property.

– 10 day right of possession or 10 days to vacate from date of sale.



• Time required to complete foreclosure:– Trustee’s sale…• 120 days minimum from date of recording of notice of

trustee’s sale with County Clerk and Recorder; • One extension of sale date for not more than 15 days

(bankruptcy is an exception).

– Judicial foreclosure…• Approximately 90 to 120 days from date suit is filed to

get order for sheriff’s sale. This assumes borrower does not defend.



• Judicial Foreclosure: – 1 year from date of sheriff’s sale borrower may

reacquire property by paying balance owed, interest as accrued and cost of foreclosure.

– If property was borrowers residence prior to sale, borrower may reside on property during one year term rent free.


Action Trustee’s Sale

Judicial Foreclosure

Deficiency on Foreclosure ofFirst Position loan – single family residential OO

No No

Deficiency if first position loan is not on single family residential OO

No Yes

2nd position lender able to sue on note

Yes Yes

Right of redemption No Yes

Montana Board of Realty Regulation Real Estate Licensee Core Course 2012.

Documents

legislative update senate

legislative update house

prior legislative oversights

sales licensees transactions

prior ability

transfer fees

sales people

language of statute