Loan Compliance Under Federal Regulations
Truth-in-Lending Act - Part of the Consumer Credit Protection Act a.k.a. Regulation Z. This requires lenders to disclose the EFFECTIVE/TRUE COST of the credit and is expressed as an ANNUAL PERCENTAGE RATE (APR). It applies for individuals (NATURAL PERSON) applying for a loan for a single family home up to a 4-plex. An individual purchasing a 5 unit building or more is considered commercial and does not apply; the same is true for farms.
Personal Property - It also applies to personal property that is LESS THAN $25,000 ($24,999 or less).
Home Improvement Loans or Refinancing Loans have a THREE-BUSINESS-DAY RIGHT OF RECESSION on the part of the borrower. The right of recession DOES NOT APPLY to First Mortgages or Trust Deed financing for a home or condominium purchase.
Loan Proposal Requirement - Regulation Z requires the monthly payments amount, number of payments, finance charges, the term of the loan, AND the Amount of Down Payment.
Advertising Loans - All loan ads with any of the above information must ALSO DISCLOSE the cash price, the monthly payments amount, number of payments, finance charges, the term of the loan, the Amount of Down Payment, AND the effective Annual Percentage Rate (APR).
Creditor Definition - Creditors must follow Regulation Z. A creditor is an entity that extends credit more than 25 times a year OR more than 5 times if a dwelling is offered as security. So, for an entity that offers loan money for home purchases with a mortgage 6 or more times a year must abide by Regulation Z.
Equal Credit Opportunity Act (ECOA)
Credit application can only be considered on information regarding the applicant-s income, net worth (assets minus liabilities), job stability, and credit (FICO) rating. It cannot be based on race, color, religion, national origin, sex, marital status, age, or source of income when deciding credit.
If an application is rejected or credit is cancelled by lender, the lender has 30 days to inform the applicant of the reasons why.
Community Reinvestment Act
This is a Federal Act to prevent REDLINING by lenders. Redlining is when a lender refuses to issue loans in a specific portion of a city. The Act requires lenders to specify the communities where lending takes place and make available a list of the types of loans it issues in that area. It also gives lenders the option to disclose the AFFIRMATIVE ACTION PROGRAMS that are available for people within a community.
Usury Law - State Laws
Some States place a limit on the amount of interest that can be charged their residents with a good credit rating.
Loan Origination Costs
The loan origination costs are usually a percentage of the loan amount to cover the costs of obtaining a credit report, appraisal of the property, (percentage) points required by the lender, and the general administration costs in establishing the loan.
Lender Requirements (of obtaining a loan)
The lender will want a home inspection including a termite check, proof the homeowner has homeowner insurance, a title insurance policy on their behalf, a title search, and an escrow account to provide for property tax payment and insurance premium payments.
A loan is issued IF the buyer/borrower meets the conditional requirements established by the lender. The requirements are typically verification of job and income, marital status, the issuance of the lender-s title policy and title report, and issuance of a proper homeowner insurance policy.
In addition, the lender will require all liens be paid on the property, verification of the borrower-s bank accounts, and a copy of the escrow settlement sheet on behalf of the borrower/buyer.
The Promissory Note and the lien such as a mortgage protect the lender against non-payment by the borrower. Besides requiring payment, the clause requires the borrower to do UPKEEP ON THE PROPERTY, PAYMENT OF PROPERTY TAX, and PURCHASE HOMEOWNER-S INSURANCE. In addition, the borrower cannot make improvements to the property without the LENDER-S PERMISSION.
Financing a Purchase
When the buyer cannot pay cash for a house (99.9% of the time), he/she needs to take out a loan to finance the purchase. The buyer signs a Promissory Note promising to pay for the house and a Lien is placed on the house by the lender. The buyer is obligated to pay and is the promisor/obligor. The lender receives payments and is the promisee/obligee.
1. Mortgage - Conventional mortgage is not backed by the Federal government and is backed by a Private Mortgage Insurance (PMI) company. Non-conventional loans are backed by the Federal government such as FHA (insured) and VA (guaranteed) financing.
2. Trust Deed (aka Trust Deed) - A 3rd party (trustee) holds title to the property until it is paid off. The lender is the beneficiary of the trust. When paid off, the trustee issues a Deed of Reconveyance to the buyer/trustor/ who is now the title owner.
3. Land Sales Contract - Owner/seller finances the purchase and retains title to the property. The buyer has what is called Equitable Title until paid off. Then the owner issues a Deed of Reconveyance.
4. Purchase Money Mortgage (PMM) - With buyers having to put 20% of the purchase price down to obtain a loan by a lender, a lot of owners are financing the down payment for the buyer by issuing a PMM to the buyer in the amount of 15% or 10% of the purchase price. This way the buyer only has to put 5% or 10% down to get the financing. These are known as 80/15/5 or 80/10/10 loans.
The seller has his/her mortgage paid off by the sale and then -TAKES BACK- a mortgage on the house as a lender in JUNIOR Position to the bank. The buyer makes payments to the seller/mortgagee on the PMM until the 15% or 10% is paid off.
Lien-Theory States vs. Title-Theory States
The lender can simply have a lien on the property or the lender can actually hold title until the loan/debt is paid off by the buyer/borrower.Lien-Theory State - Lien-theory States where title is held by the buyer/borrower (issued a deed at closing). The lender places a lien position (usually 1st in line) by recording the lien with the county where the property is located. Example: The lender records the mortgage lien it holds on the property.
Title-Theory State - Most States, including yours (Washington), are Title-Theory. The lender actually has -legal title- to the property. The buyer/borrower only has "equitable title" and possession of the property. Upon paying of the promissory note, the lender issues a "Deed of Reconveyance" to the buyer/borrower/now title owner.
Intermediate-Theory State - This is a combination of lien theory and title theory. The law says the lender only has a lien (not title), BUT if the borrower defaults on a loan the lender gains title to the property.
Forms of Mortgages
In 2002, the Federal Reserve encouraged lenders to issue more loans so -all sorts- of individuals could buy a home. The lending industry then came up with all sorts of -creative- financing that would allow people to buy a home. The problem was that the industry went over board and started issuing loans to questionable buyers who really couldn-t afford to buy a home. One of the worst cases was a waitress who was a single mom with few assets who qualified for a $700,000 loan down in Los Angeles.
Adjustable-Rate-Mortgage (ARM) - The interest amount that is charged is subject to an ESCALATION CLAUSE that allows the interest rate to be adjusted (usually upward) by the lender during the life of the debt payments. The rate of interest is tied to an index such as the discount rate of the Feds or to interest earned on U.S. Treasury Securities such as T-Bills sold in the market.
The lender establishes a MARGIN that adjusts. This is the difference added to index which is the profit level enjoyed by the lender. If the T-Bills are paying 3% and the lender-s margin is 4%, the buyer/borrower is paying 7% interest.
Some ARMs have a CAP specified on the loan. This is the maximum limit that the interest rate can increase to.
Graduated-Payment Mortgage (GPM) - This is also known as (a.k.a.) a FLEXIBLE PAYMENT PLAN. The buyer/borrower begins with very low monthly payments and payments increase later. If the low payments do not cover the interest charged, the debt owed will increase and this is called NEGATIVE AMORTIZATION. The loan balance increases. Our LA waitress had this type of program and she had a negative amortization of $28,000 the first year. The debt went from $700,000 to $728,000 after the first year.
This is also known as a Growing-Equity Mortgage or GEM because the buyer/borrower will have to make much larger payments in the future.
Wraparound Mortgage - A junior (2nd in line) mortgage is wrapped around the original (1st) mortgage. The lender for the wraparound junior takes on the 1st original loan and makes the payments. The home owner/mortgagor makes one payment to the junior (2nd) wraparound mortgage. Obviously, the original 1st mortgage would have to be assumable in construction.
Open-End Mortgage - Allows the homeowner/mortgagor to borrow continuous money up to a maximum. This is secured by the original 1st mortgage. The key is that this is not for contractors, but for the homeowner.
Budget Mortgage (PITI Loan) - This type of mortgage requires all the mandatory payments for a house to be paid to the lender on a monthly basis. This includes Principal, Interest, Property Tax, and Insurance (PITI). The monthly payments for Property Tax and Insurance go into an escrow account to make annual payment after 12 months.
Blanket Mortgage - This is used for subdivision and condominium construction. It covers (blankets) the development by a contractor for such developments. The mortgage has a PARTIAL RELEASE clause that allows the contractor to sell units/homes of the project and be released with payment to the lender.
Buydown Mortgage - Allows the buyer/borrower to make lump sum payments of interest to -BUY DOWN THE INTEREST RATE- for the loan over a number of years. Example: $100,000 loan at 6%. If the borrower pays $5,000 cash, the interest rate would be brought down to 5% for a 5 year period.
Package Mortgages - Such mortgages are made for condominium and new home contraction with appliances (personal property) and the property included in the purchase. This covers the buyer purchasing real and personal property in the purchase.
Construction Loan a.k.a. Short Term or Interim Loans - Contractors take this out to construct a project. The contractor will have a series of DRAWS with each stage of construction.
Straight Mortgage a.k.a. Term Loan - The mortgage allows the buyer/borrower to make ONLY INTEREST payments. Principal is due and fully payable at the end of the mortgage period.
Shared-Appreciation Mortgage - This is mainly for commercial development. The lender offers a lower rate of interest in turn for a share of the pie when the property is sold.
Reverse Annuity Mortgage (RAM) / Reverse Mortgage - Owner must be 62 years of age or older. The owner is allowed to obtain money/equity from the home on a regular or money draw basis or one single payment. When the person no longer resides in the home, the loan becomes due and payable (sold).
The majority of this course will involve a review of material, but with adjustments that are necessary in preparation for the AMP exam. The main areas of concentration will include real estate finance and professional responsibilities as a real estate agent.
Finance - With the economic adjustments within the lending industry over the past so many years, we have to adapt material to these changes. This includes lending procedures, loan terminology, and Federal and State financial laws, along with working knowledge.
Professional Responsibities - Some of the areas of emphasis on the AMP exam involve practical application of practicing professional real estate. This will include the interpretation of agent responsibility, actions of a fiduciary, proper dealings with all parties to a transaction, and legal responsibilities to your client and to your firm.
The following represents the AMP interpretation of lenders and their various functions.
Commercial Banks - Commercial banks are provided as standard banking services for individuals and for businesses such as checking accounts, saving accounts, credit cards, and wire transfers. These banks specialize in short term loans such as home improvement loans, business loans, mobile home loans, RV-s and automobiles. Note, AMP does not list them as a lender for residential homes with a standard mortgage.
Savings and Loans - These are shown to specialize in long term, single-family home loans. These institutions are shown to issue a conventional loans as well as non-conventional loans such as FHA and VA mortgages.
Mutual Savings Bank - AMP emphasizes that these institutions are state chartered and owned by their depositories. AMP also states that these lenders are primarily located in the northeast section of the United States such as New York and New England. These institutions mainly deal with FHA insured loans and VA guaranteed loans.
Insurance Companies - Insurance companies specialize in offering a large scale loans for commercial and industrial development. Their loans are usually long term and finance residential housing such as apartments. They also specialize in funding the construction of commercial buildings.
Mortgage Brokers vs. Mortgage Bankers
All State examinations try to take advantage of the confusion regarding mortgage brokers and mortgage bankers. The main differential between them is that the bankers utilize their own money in putting mortgage programs together. The broker, on the other hand, represents the buyer and shops around with the various lenders to put a mortgage program together. The brokers never utilize their own money.
Mortgage Banker - The mortgage banker originates loans, puts them into a package program, and sells the package in the open market. Buyers would include Fannie Mae and Freddie Mac as well as Wall Street firms putting together secured debt obligation products.
Mortgage Broker - The mortgage broker, in theory, is to keep abreast of the lending industry and find the best debt program for their buying customers. In short, they bring borrowers and lenders together in putting individual mortgage programs together. For this, they receive a percentage commission based on a percentage of the money borrowed.
Credit Unions and Pension Funds
Pension Funds - Pension funds look to invest in fixed interest mortgages as a source of earned interest for their pension participants. The concept is to invest into relatively safe investments secured by a lien on real property. Pension funds invest their money into mortgages provided by the mortgage bankers and mortgage brokers.
Credit Unions - State exams emphasize the lending practices of credit unions as a lender interested in only providing loans to their members of the credit union. Those individuals who are not members of the credit union are ineligible for a credit union loan.
Rural Economic and Community Development Agency
The RECD is handled under the Department of Agriculture and negotiates loans for people who live out in the rural areas. They offer programs that negotiate loans for the purchase of property, costs of operating farms, and the purchase of farm equipment.
The interest rates that are charged on loans are based on the income of the borrower. The RECD usually originates loans through a private lender. However, if lenders are not available the agency is allowed to make loans direct.
This program is also known as the Federal Farm Loan program.
The Federal Reserve
The Federal Reserve, commonly referred to as the Fed, was designed to keep the economy stable by controlling the money supply and the available credit within the United States. The powers of the Federal Reserve include the following:
1. Creating the Money Supply - The Federal Reserve determines how much money is to be printed by the Treasury Department and then sent to the financial community.
2. Establishing the Discount Rate - This is the rate of interest that banks can acquire funds from the government and pay low interest at a discounted rate.
3. Reserve Requirements - Regulating of the amount of money that lender-s must hold in reserve. The reserve amount cannot be utilized by the lender and must simply sit in a special account.
The effect of Federal Reserve actions:
1. Supply of Money - An oversupply of money can cause inflation. An undersupply of money can cause a recession. The Federal Reserve can move money into or out of commercial banks by buying or selling federal government bonds. Buying bonds puts money INTO THE ECONOMY. Selling bonds takes money OUT OF THE ECONOMY.
2. Discount Rate - Lowering the discount rate allows banks to acquire money at a lower rate. This way the banks can make loans to the general populace at a lower rate as well.
3. Reserve Requirements - When the Fed lowers the reserve requirement, the lenders have more money to get out into the economy. This increases the money supply and thus decreases interest rates.
What is Radon?
Radon is an odorless, colorless, tasteless, radioactive gas that is naturally present in our atmosphere. It is a byproduct of disintegrating rock in the ground.
As the rock splits and crumbles, it releases radon into the air. The radon itself is not the health hazard; rather the hazard is a result of the radioactive gas charging dust particles in the air with gamma radiation. These radioactive particles are then inhaled and can adhere to the lung tissue and release energy that can damage or kill sensitive cells as well as damage DNA molecules and cause lung cancer.
The potential for developing lung cancer is a function of the amount of radon exposure and for how long. Oh, and if a person is a smoker, the risk of getting lung cancer from radon is substantially greater. The Environmental Protection Agency estimates there are 21,000 deaths each year from radon-related lung cancer. Only cigarette smoking results in more lung cancer-related deaths.
Any house can have a radon problem. New houses and older houses, well-sealed and drafty houses, and houses with or without basements may all be subject to elevated radon levels. The EPA estimates that nearly 1-out-of-15 houses in all 50 states will have elevated radon levels. The amount of radon found in the soil can vary greatly within small geographic regions and will depend on the amount of uranium and radium found in the underlying rock structure of soil the house is built on. The amount of radon entering a structure can be affected by the strength of the radon source, underlying soil type, the water content of the soil, and empty spaces in the soil.
Radon is usually only a hazard when it gets concentrated in living areas of a home over long periods.
How Radon Gets Inside the Home
During a natural geologic process, rock in the soil becomes fractured and small amounts of radon get emitted into the air. As the radon seeps out of the soil, it enters the home through its foundation cracks, vent systems, pipe penetrations, plumbing and heat pipe ducts, and unsealed soil areas. Sometimes the gas will also get sucked into the structure because of negative pressure caused by heating systems, fireplaces, and chimneys. This negative pressure happens when warm air of the heating system moves upward, creating a negative pressure in lower areas that causes replacement air to enter. Because radon is a gas that has a heavier molecule than oxygen, it will eventually settle out of the air to the lowest levels of the home when there isn’t enough ventilation to keep it moving to the outdoors.
Water can also be a source of radon – usually not from our municipal water supplies, but from wells where water might travel through rock, or be drilled into bedrock that is releasing radon where the radon becomes trapped in the water and released again when the water gets converted to steam inside the home such as with a hot shower, washing machine, cooking, and other steam-producing uses for the water. Radon levels can actually increase up to 200 times beyond the recommended action level because of released radioactivity during a shower.
How Radon is Measured
Radon is measured in Picocuries per liter. A picocurie is one trillionth of a curie. There is no current agreement among health professionals for a safe level of radon exposure. The EPA has a suggested an indoor "action level" of 4.0 pCi/L. Here are some EPA recommendations for various radon measurement levels inside a home:
Testing for Radon
Although radon levels can be localized, any house could have a high-level radon. For example, two houses located side-by-side can have dramatically different radon levels, and general radon concentrations in a local area or even state should not be relied upon as an indicator for a specific house. The amount of radon in a structure can come down to one piece of radon producing rock in the ground underneath a house.
Radon tests are categorized as either short-term or long term. Short-term testing, or more properly called screening, does not definitively identify long-term radon exposure and is useful in determining the presence of radon, but not any long-term level of radon concentration. This type of screening is the one we most often use for a real estate transaction.
Screening requires the testing device to be placed in the lowest, occupied level of the house for not less than 48 hours. At the end of the screening period, the results will reveal the worst case scenario for radon concentration. Usually, if radon isn’t found in this location, it is not likely to be found elsewhere inside of the house.
Long-term testing involves testing with devices that determine the average exposure to radon over at least three months. Long-term testing is considered definitive and should be employed prior to a mitigation program. Long-term testing should be used to confirm any short-term screening results between 4.0 pCi/liter and 10.0 pCi/liter.
Radon testing devices are further categorized as either active or passive. Passive devices do not require power to function; rather they are exposed to the air in the house for a specified period, and then sent to a laboratory for analysis. These passive devices are inexpensive and cost only about $20 to $35, including the test evaluation fee. The homeowner will want to make sure the testing devices are labeled "EPA listed" or "EPA Approved."
Active devices require power to operate and include continuous radon monitors and continuous working level monitors. These devices continuously measure and record the amount of radon in the air and are capable of detecting unusual swings in reading levels. Many of these devices also provide a report if there is test interference, such as opening a door or window for a long period or being moved from the original location.
These devices are more costly than the passive devices but will provide a more accurate analysis of the radon in a house. These devices also usually require the use of a trained technician and may be used to either conduct short term or long term tests. The short-term tests range from 2 to 90 days. The long-term tests are for periods greater than 90 days.
Tests using active devices will range in price from $75 to $200, depending on the type of device used and the length of the testing period. Most of the active test devices will require the hiring of a trained radon-testing technician. If the test device being used requires the use of a trained technician, the technician should be listed with the EPA's Radon Proficiency Program as a certified technician for the specific device to be used in the test.
Reducing Radon Levels
The logical way to reduce radon levels is to stop it from entering into the structure. However, when this can’t be done, the next thing to do would be to reduce (or to mitigate) it after it enters. Radon reduction techniques usually, but does not always, require a licensed radon mitigation contractor.
The type of foundation of a house generally determines which radon reduction system will work best. For example, slab on grade foundations and homes with basements almost always use suction, while crawl space foundations tend to use ventilation or depressurization techniques.
When radon is found in well water, point-of-use devices, such as those that attach to the faucet are ineffective. Instead, granular activated carbon or aeration methods tend to be the most effective methods for this purpose.
When radon reduction is required, it is important to advise your clients to use professional contractors who have passed the EPA's Radon Contractor Proficiency Program.
Rules for Advertisements
The purpose of advertising is to attract others to the services and products that you offer, your company, and yourself. In the real estate business, advertising includes all forms of representation, promotion, and solicitation relating to professional real estate activity including, but not limited to:
The next frame presents you with the text of this rule.
(1) As used in this rule, "advertising" and "advertisement" include all forms of representation, promotion and solicitation disseminated in any manner and by any means for any purpose related to professional real estate activity, including, without limitation, advertising by mail; telephone, cellular telephone, and telephonic advertising; the Internet, E-mail, electronic bulletin board and other similar electronic systems; and business cards, signs, lawn signs, and billboards.
(2) Advertising by a licensee, in process and in substance, must:
(a) Be identifiable as advertising of a real estate licensee;
(b) Be truthful and not deceptive or misleading;
(c) Not state or imply that the real estate broker or property manager associated with a principal real estate broker is the person responsible for operating the real estate brokerage or is a sole practitioner or principal broker;
(d) Not state or imply that the licensee is qualified or has a level of expertise other than as currently maintained by the licensee; and
(e) Be done only with the written permission of the property owner(s) or owner(s') authorized agent.
(3) Advertising that includes the licensee's name must:
(a) Use the licensee's licensed name; or
(b) Use a common derivative of the licensee's first name and the licensee's licensed last name.
(4) The licensed name or registered business name of the principal real estate broker, sole practitioner real estate broker, or property manager must be prominently displayed, immediately noticeable, and conspicuous in all advertising.
(5) Except as provided in section (8) of this rule, a real estate broker must:
(a) Submit proposed advertising to the licensee's principal broker for review and receive the principal broker's approval before publicly releasing any advertisement; and
(b) Keep a record of the principal broker's approval and make it available to the agency upon request.
(6) Except as provided in section (8) of this rule, a principal real estate broker:
(a) Is responsible for all advertising approved by the principal broker that states the principal real estate broker's licensed name or registered business name; and
(b) Must review all advertising of a real estate broker or a property manager who is associated with the principal real estate broker.
(7) A principal real estate broker may delegate direct supervisory authority and responsibility for advertising originating in a branch office to the principal broker who manages the branch office if such delegation is in writing.
(8) A licensee associated with a principal real estate broker may advertise property owned by the licensee for sale, exchange, or lease option without approval of the principal real estate broker, if:
(a) The property is not listed for sale, exchange, or lease option with the principal broker;
(b) The advertising states that the property owner is a real estate licensee; and
(c) The advertising complies with all applicable other applicable provisions of ORS chapter 696 and its implementing rules.
(9) Advertising in electronic media and by electronic communication, including but not limited to the Internet, web pages, E-mail, E-mail discussion groups, blogs, and bulletin boards is subject to the following requirements:
(a) Advertising must comply with all other requirements of this rule;
(b) Advertising by a licensee must include on its first page:
(A) The licensee's licensed name as required in section (3) of this rule;
(B) The licensed name or registered business name of the principal real estate broker, sole practitioner real estate broker, or property manager; and
(C) A statement that the licensee is licensed in the State of Oregon.
(c) Sponsored links, which are paid advertisements located on a search engine results page, are exempt from the requirements contained in subsection (b) of this section if the first page following the link complies with subsection (b).
(d) E-mail from a licensee is exempt from the requirements of subsection (b) of this section if the licensee's initial communication contained the information required by subsection (a).
(10) No advertising may guarantee future profits from any real estate activity.
(11) A licensee may use the term "team" or "group" to advertise if:
(a) The use of the term does not constitute the unlawful use of a trade name and is not deceptively similar to a name under which any other person is lawfully doing business;
(b) The team or group includes at least one real estate licensee;
(c) The licensee members of the team or group are associated with the same principal broker or property manager;
(d) The licensee members of the team or group use each licensee's licensed name as required under section (3) of this rule;
(e) If any non-licensed individuals are named in the advertising, the advertising must clearly state which individuals are real estate licensees and which ones are not; and
(f) The advertising complies with all other applicable provisions of ORS chapter 696 and its implementing rules.
Important Advertising Points
The following points should be noted about these advertising rules:
Real estate firms have agreements with each other to advertise each other's listings. Some of these agreements allow a licensee to display or advertise the listings of other licensees over the Internet according to the rules of the member's MLS, commonly referred to as Internet Data Exchange, or IDX. Before advertising properties listed by other licensees or their firms, licensees should check with their principal broker to make sure an IDX or other authorization agreement exists.
House Bill 2140 - Seismic Information
As you know, Oregon sellers of real property are required to disclose certain information to buyers, including information about the title, encumbrances, lead-based hazards, and all the other things asked for in the Seller's Property Disclosure Statement and residential real estate sale agreement.
House Bill 2140 amended ORS 105.464 by requiring the addition of two questions to the existing Seller’s Property Disclosure Statement.
House Bills 2510 and 2511 - Electric Charging Stations
Once seen as a fad by industry watchers and auto executives, most would now admit that the rise of electric cars seems inevitable. There was a 5% decline in electric vehicle sales from 2014 to 2015. However, sales jumped by 37% in 2016. Final numbers for electric vehicle (EV) sales in the U.S. were recently released in January 2017 and project that electric vehicle sales will continue to increase at a 32% compounded rate for the foreseeable future.
By year-end 2016 there were about 30 different EV offerings, with total sales of 159,000 vehicles. Five different models sold at least 10,000 units in 2016 that were manufactured by Tesla, Chevrolet, Nissan, and Ford. In Oregon, electric vehicles are between two and four times the national average. Between 2010 and 2015, approximately 9,000 electric vehicles were sold in the State of Oregon. In 2013, Oregon joined with seven other states in creating a Zero-Emission Vehicle (ZEV) program to promote the growth of the electric vehicle market. Oregon also has joined with California and Washington to create the West Coast Electric Highway by installing fast-charging stations along Interstate 5.
In response to this increase in electric vehicles, the 2017 Oregon Legislature enacted two bills. House Bill 2510 deals with commercial properties, and House Bill 2511 deals with residential properties. Let's look briefly at these two bills.
Both bills allow a tenant to install and use an electric vehicle charging station. In the case of a residential tenant, it is to be on a parking spot assigned to the tenant and in the case of a commercial tenant, the charging station is to be located at or near any parking spot assigned to that tenant. The tenant is to be financially responsible for the cost of permitting, installation, maintenance, electricity use, and removal of the charging station. The landlord may prohibit the installation or use of a charging station if the premises do not have at least one parking space per rental unit and may require the tenant to submit an application before installation of the station to ensure compliance with architectural standards and other reasonable restrictions that the landlord might impose.
Charging stations must be installed by certified, licensed electricians. The tenant is also to provide renter's insurance in an amount of not less than $1 million and name the landlord on the policy if the charging station is not a certified electrical product.
Tenant installed charging stations remain the personal property of the tenant, unless a different arrangement between the tenant and landlord. Upon removal, the tenant is to restore the premises to their original condition.
House Bill 2737 - Tiny House Building Code
Perhaps one of the more interesting bills submitted and passed by the Oregon Legislature in its 2017 session is House Bill 2737, known as the Tiny House Bill.
The demand for tiny houses or micro-houses is driven by a number of factors, including the cost of building materials, efforts to reduce the use of energy and natural resources, housing density goals and homelessness. The micro-houses have difficulty meeting residential building codes as these codes were developed for traditional housing forms. The International Code Council, or ICC, has approved new micro-housing standards for inclusion in the 2018 ICC code update. The Building Codes Division of the Department of Consumer and Business Services typically has a lag of one-to-three years before adjusting its codes to reflect ICC changes.
ICC code changes are not necessarily adopted automatically into the Oregon building codes, so what House Bill 2737 does is to require the Director of the Department of Consumer and Business Services to adopt the amendments to the specialty building codes to establish construction standards for homes that are 600 square feet or less. The code addresses such issues as ceiling height, lofts, ladders, and egress.
The codes relating to micro-houses are effective as of January 1, 2018.
Reissuing a Suspended License
There are some new rules in OAR 863-014 and OAR 863–024 for reissuing a suspended license. Division 14 deals with broker and principal broker licenses, and Division 24 deals with a property manager license. The rules for both types of licenses mirror each other.
A suspended license cannot be renewed if the license remains suspended and is not reissued and renewed within one year of its expiration. The license then lapses. The requirements to renew a reissued license include paying the required fee and meeting the required continuing education requirements for license renewal.
In this case of a lapsed license, to become licensed again, the former licensee must reapply and meet all of the licensing qualifications required to obtain a license.
Trust Account Reconciliation Mail-in Reviews
Section 0081 continues to deal with the topic of compliance reviews. OAR 863-015-0092 was created to deal exclusively with reconciliation mail-in reviews. The old law referred to these reconciliation mail-in reviews as a mail-in audits. The language changes were considered necessary to clarify that the actual review process is a review and should NOT be confused with a forensic audit. Similar changes were made to OAR 863-025-0090, which deals with mail-in property management trust account reconciliation mail-in reviews.
The purpose of mail-in reviews is to determine if the record keeping procedures for clients' trust accounts are in compliance with all Agency rules and acceptable accounting practices. If the procedures don't meet these tests, the Agency will issue a notice listing the compliance issues to be corrected. If they are not corrected and cured, further action by the Agency can occur and include the issuance of an educational letter or sanctions.
Addenda to Purchase Agreement or Counter Offer Must be in Writing
This next new rule addition to the Offers to Purchase section of the administrative rules states that any amendment or addendum to the purchase agreement or counter offer must be in writing and include the date of the amendment and the signatures of the sellers and buyers.
Disclosure of Real Estate License Status
Okay, I hope you all know that you have to disclose your license status, active or inactive, to all parties to the real estate transaction when you are involved directly or indirectly in offering or negotiating for the sale, exchange, lease option, or purchase of real estate when you are a principal to the transaction.
OAR 863-015-0145 added language that this disclosure requirement only relates to transactions for properties within the State of Oregon.
Closing a Real Estate Transaction by a Broker
The vast majority of real estate transactions are closed by an escrow agent or lawyer. However, an Oregon principal broker can also close transactions, but only for their listings.
A real estate broker associated with a principal broker can also close a real estate transaction so long as that licensee is authorized by their principal broker and the closing is supervised by the principal broker. This rule that allows for a closing by a broker associated with a principal broker is amended to require the principal broker's written authorization giving the associated broker permission to close the transaction. The authorization must be in writing, signed by the principal broker, and then kept in the transaction file.
Clients' Trust Accounts and Disbursal of Disputed Funds
OAR-015-0186 is the authority for the procedures to disburse disputed trust funds. The paragraph 8 text was removed from this rule because it did not address the management of rental real estate and the Residential Landlord and Tenant Laws in ORS 90 as well as contract law. The paragraph was deemed to be outside the authority of the Real Estate Agency.
This is the paragraph that was removed:
"Real estate licensees with property management clients' trust accounts must review and follow the requirements for handling client funds under the Residential Landlord and Tenant statutes in ORS Chapter 90. For any other non-real estate sales transactions disputes, the principal real estate broker must review the terms of the written contract for handling disputed funds."
ORS 696.582 says that a written notice of compensation can be signed by a real estate broker or principal real estate broker who is authorized under rules adopted by the Real Estate Commissioner, but OAR 863-015-0188 said that only a principal broker could enter into a compensation agreement with a principal to a real estate transaction. Because of this conflict between OAR and ORS, the OAR was removed and is not replaced.
Clarification of Licensee Parties on Final Agency Acknowledgement
Oregon Real Estate Forms LLC, or OREF, publishes the standardized Residential Real Estate Sale Agreement form used in most residential real estate transactions throughout Oregon. In the Final Agency Acknowledgement section of their 2017 revised form, OREF changed Selling Licensee to Buyer’s Agent and Listing Licensee to Seller’s Agent. The terms Buyer’s Agent and Seller’s Agent are the terms that are used in current real estate practice and are better understood by the consumer.
Accordingly, OAR 863-015-0200 has updated to this terminology in the rule for the final agency acknowledgment so that it matches the terminology used in the OREF forms.
Splicing OAR 863-015-0255 into Four Rules
OAR 863-015-0255 combined the rules about clients' trust account records and document transmittal requirements into one rule. For clarity, ease of reading, and reference purposes, the Agency found it would be better to parse the single rule into four rules. These rules are found in Sections 0250, 0255, 0257, and 0259. These are some of the main features that they would like you to know about each rule.
When a real estate broker receives
Although the requirement to deliver the documents within three banking days was always the rule, it was often lost in the larger rule, so Section 0250 was created to focus attention on the document delivery time frame requirement.
Okay, in Rule 0255, a principal broker must notify the Agency within 10 business days from the date a clients' trust account is opened. This notification is accomplished through the Agency’s eLicensing system and must include the Notification of Clients' Trust Account form.
Likewise, if a principal broker closes a clients' trust account, a notice must be given to the Agency within 10 business days of the closure.
Then there is Rule 0257. Rule 0257 deals with receiving and disbursing funds from a clients' trust account. As a reminder, a real estate broker must deliver to the principal broker within three banking days any instrument representing earnest money. If the form of the earnest money is a check, it can be held undeposited until the offer is accepted or rejected. Upon offer acceptance the check has to be deposited within three days into either the principal broker's clients' trust account or into a neutral escrow, whichever is stipulated in the real estate sale agreement. Or if made payable to the seller, it must be delivered directly to the seller within the three banking days, which brings us to the final for the four rules:
Rule 0259 allows for the transmittal of a check made payable to the seller directly to the seller without depositing into a clients' trust account. House Bill 67 added the following language to ORS 696.241:
"A real estate licensee who, for the purpose of transmitting a check, receives the check from a buyer or tenant that is payable to a property owner or seller is exempt from the deposit requirements. The Agency may determine by rule the records that must be maintained for checks received as described in this subsection and the manner in which the checks must be transmitted."
So, the Agency rule relating to checks made payable to the seller or property owner is, as follows, under Rule 0259. For checks received made payable to the seller, the principal broker must keep the following information:
A second senate bill that affects real estate practice in Oregon is Senate Bill 68, which was filed by the Governor on behalf of the Oregon Real Estate Agency. This bill raises the Agency's various fees for the first time in 20 years.
All of these fee increases go into effect on January 1, 2018:
Ongoing Transactions During License Transfers
OAR 863-014-0063 (6) and (7), added by Senate Bill 67 and effective January 1, 2018
(6) Following a license transfer, a real estate broker may continue to engage in professional real estate activity on transactions that began while associated with the sending principal broker under the following limitations:
ORS 696.030, Exemptions
Real estate regulations rules do not apply to
Prohibited Acts of an Unlicensed PA
An unlicensed personal assistant cannot:
Permitted Acts of an Unlicensed PA
A license is not required for the following activities performed by an unlicensed individual.
The Oregon Constitution requires the legislature to adjust district boundaries after each 10-year census. This legislative adjustment is known as redistricting, which is the process of redrawing legislative and congressional district lines following the decennial (recurring every ten years) U.S. Census. As required by the Oregon and U.S. constitutions, the lines get redrawn so that voting districts are roughly equal in population.
The Oregon Constitution requires the legislature to adjust district boundaries after each 10-year census. Oregon made its last boundary adjustments in 2011, and can adjust boundaries again after the 2021 census.
How the Legislature Creates and Enacts Legislation
The Legislative Assembly holds annual sessions at the Capitol of the State, Salem, Oregon. A session beginning in an odd-numbered year may not exceed 160 calendar days in duration; a session beginning in an even-numbered year may not exceed 35 calendar days in duration.
A senator represents his or her district in the Oregon Senate. A representative represents his or her district in the Oregon House of Representatives. In both the House of Representatives and Senate, the political party having the majority of members will be in charge and appoint a leader.
A session beginning in an odd-numbered year may not exceed 160 calendar days; a session beginning in an even-numbered year may not exceed 35 calendar days.
Creating a New Bill
A bill is a proposal for a law. A bill that is passed by the legislature is known as a statute. A ballot measure voted on by the people or referred by the House of Representatives to the citizens for a vote can also create a statute.
A bill passed by the legislature is known as a statute.
Both houses must pass the bill in identical form for it to become law. Except for revenue bills that are required to originate in the House of Representatives, a bill can be introduced in either the Senate or the House.
The following is the process for introducing a bill.
The study of system of rules which a particular country or community recognizes as regulating the actions of its members and which it may enforce by the imposition of penalties.