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Changes to California HOBR

The “Big” Guys, “Little” Guys, and Those In Between by T. Robert Finlay, Esq. During the height of the Financial Crisis, California passed its landmark legislation intended to help homeowners facing foreclosure — the Home Owner Bill of Rights (HOBR). In short, HOBR required loan servicers to follow certain procedures when putting defaulted borrowers on notice of foreclosure prevention alternatives and prevented servicers from “dual tracking,” i.e., simultaneously proceeding with foreclosure while the homeowner is being reviewed for a loan modification. The law was limited to owner-occupied consumer loans in first position (In response to COVID’s impact on landlords, California’s Legislature amended HOBR in 2020, extending its application to certain tenant occupied properties. Those extensions have since expired). HOBR intended to put loan servicers into two buckets for compliance purposes — the “Big Guys” who annually handle 175 or more annual qualifying foreclosures and certain “Little Guys” who do not meet the 175 threshold. While servicers in both buckets are prohibited from dual tracking, the more detailed and onerous HOBR provisions only applied to the Big Guys, including, but, not limited to:  »         Civil Code § 2923.7, requiring a Single Point of Contact; and  »         Civil Code § 2923.6, mandating certain notices and procedures when the borrowersubmits a complete loan modification. The Little Guys “exception” to the more detailed requirements was limited in Civil Code § 2924.15 to: (A) A depository institution chartered under state or federal line law, a person licensed pursuant to Division 9 (commencing with 3 Section 22000) or Division 20 (commencing with Section 50000) of the Financial Code, or a person licensed pursuant to Part 1 (commencing with Section 10000) of Division 4 of the Business 6 and Professions Code, that, during its immediately preceding annual reporting period, as established with its primary regulator, foreclosed on 175 or fewer residential real properties, containing no more than four dwelling units, that are located in California. But, what if you are a retired couple who occasionally invests in Trust Deeds, but are not a “depository institution” or someone “licensed” by the Financial or Business and Professions Codes? The answer — small investors must comply with the more detailed and onerous HOBR provisions intended by the Legislature to only apply to the Big Guys doing over 175 annual foreclosures! Hard to believe, but an investor who buys one loan a year, must comply with the same HOBR provisions as the largest loan servicers in the country. Since HOBR’s enactment in 2013, the private lending industry has looked for a solution to this obvious unintended oversight by the California Legislature. Unfortunately, for years, there was no appetite in Sacramento to re-open the heated discussions over HOBR. Fortunately, enough time has finally passed, which allowed the California Mortgage Association (“CMA”) to sponsor Senate Bill 1146, which, among other things, puts a small investor “that makes and services seven or fewer loans” a year in the same compliance bucket as loan servicers who conduct less than 175 annual foreclosures. SB 1146 recently passed both houses and is waiting for Governor Newsom’s signature. If signed, the “Really Little Guys” will still have to comply with HOBR; but, starting on January 1, 2025, only its less detailed provisions. Note — The anticipated changes to HOBR do not exempt investors who make and service seven or fewer loans a year. These investors must still comply with HOBR. The new law just reduces the HOBR provisions that need to be complied with. If you have any questions about what provisions must be complied with or need help complying with HOBR, please feel free to reach out to Robert Finlay at rfinlay@wrightlegal.net.

Legal

California’s Recently Passed SB 567

What to Understand Before Jumping into the Fire By Todd E. Chvat, Esq. and T. Robert Finlay, Esq. SB 567 directly impacts two sets of property owners — fix-and-flip investors planning to substantially remodel or rebuild a property for resale AND property owners planning to move into an occupied property either themselves or by a family member. To Understand the New Laws, We Must Understand the Old Laws Civil Code § 1946.2 prohibits a property owner from removing a tenant who has continuously lived in the property for 12 months without just cause. “Just cause” is broken into two groups — “at-fault just cause” and “no-fault just cause.” As you can imagine, “at-fault just cause” generally involves a tenant’s failure to pay rent, breach of lease, waste, running a meth lab or other criminal activity. For our purposes, we are focused on the “no-fault just cause” grounds to remove occupants, which include: (i) the property owner or family member moving into the property; (ii) completely removing the property from the rental market; (iii) complying with certain government orders, e.g., code violations; or (iv) substantially remodeling the property. Beginning April 1, 2024, SB 567 will add a significant hurdle to any “no-fault just cause” eviction where the property owner (or the owner’s direct relative) desires to occupy the residential real property or an investor seeks to displace the tenant for a substantial remodel. New Rules for Property Owners Planning to Move Into the Property It is very common for prospective owners to buy rental property with the goal of moving in or for existing property owners to remove occupants to move their children or parents into the property. Historically, this was a fairly easy process with no restrictions or guidelines on when the owner must occupy the property or for how long. Effective April 1, 2024, SB 567 will require that the property owner or family member (spouse, domestic partner, parent, child, grandchild, grandparent) actually move into the property within 90 days AND continuously occupy the property as their primary residence for at least 12 months. In other words, property owners cannot just use the “move in” provision as an excuse to get rid of a tenant they do not like or to increase the rent. In addition to the new requirements in SB 567, property owners should also pay close attention to City and County restrictions on asking tenants to move out so you or your family can move in. Many Cities and Counties have conflicting or more restrictive requirements. Before buying a property with the plan to remove the occupants and move in or before acting to move your family into one of your rental properties, we suggest contacting your attorney to understand all applicable laws. See below for what happens if you get it wrong. New Rules for Investors Planning to Tear Down and Rebuild Previously, investors could relatively easily remove occupants by citing the “substantial remodel” grounds of the “no-fault just cause” grounds. Starting April 1, 2024, those same investors will have to jump through several more hoops before they can remove the tenants. Specifically, SB 567 will require the investor to provide the tenant with written notice, which includes a description of the substantial remodel to be completed and the expected duration of the repairs, or the expected date by which the property will be demolished, and a copy of permits required to undertake the substantial remodel or demolition. The Bill further requires that the remodel or demolition actually be done. Again, please keep in mind that some Cities and Counties have different and often more restrictive requirements when removing tenants to demo or substantially remodel the property. What Happens if You Get it Wrong? SB 567 gives wrongfully displaced tenants the right to sue property owners for violating either of the above provisions. In addition to recovering actual damages, the wrongfully displaced tenant can recover punitive damages, treble damages (i.e., triple actual damages) and attorneys’ fees and costs. On top of that, a property owner who wrongfully displaces a tenant to demo or substantially remodel the property, must also offer the property back to the displaced tenant at the same rent and lease terms along with reimbursement for reasonable moving expenses. And, if that’s not enough, the Attorney General could also sue you for the same violations. And Don’t Forget When using any of the “no-fault just cause” grounds for removal, the tenants are entitled to relocation costs equal to one month’s rent. And, you guessed it – many Cities and Counties require more substantial relocation costs. Lastly, don’t forget to check to see if there are any local rent control restrictions! Do the New Laws Mean That Property Owners Can Never Move In or Remodel Their Property? No. SB 567 is not so onerous that it prevents property owners from moving their kids into a rental property or investors from remodeling and reselling property. Nor does it make the process so complicated that it is no longer cost-effective to do so. SB 567 merely changes the rules by which property owners may remove tenants. If done properly, investors and property owners can still take advantage of these “no fault” grounds to get possession. But, if not done properly, SB 567 creates significant financial exposure for these property owners and investors. To reduce that risk, we recommend consulting with your counsel prior to venturing down either path to remove occupants. Disclaimer: The above information is intended for information purposes alone and is not intended as legal advice. Please consult with counsel before taking any steps in reliance on any of the information contained herein.

Legal

California’s Assembly Bill 1033

May be a Game Changer for the Development of Accessory Dwelling Units By Kathryn Moorer, Esq. and T. Robert Finlay, Esq. You may have read or heard a lot about Accessory Dwelling Units or ADUs (also colloquially known as Mother-in-Law Suites) recently as building restrictions have been relaxed over the last several years allowing property owners to take advantage of additional lot space, or space within the primary residence, to add value to their property. Let’s not forget the benefits of getting the in-laws out of your personal space. However, what you may not know is that when the California legislature recently passed Assembly Bill 1033, it opened up a whole new world of opportunity to home-owners, developers, and investors by allowing for the ADU to be partitioned and sold separately from the primary dwelling unit on the property. For those unfamiliar with the evolution of laws governing ADUs or ADUs in general, this article provides a quick recap before examining the implications of the new statutory amendments set to take effect January 2024 concerning ADU sales. Accessory Dwelling Units ADUs are fully functional, separate housing units that can be attached to, or wholly detached from the primary residence, such as a guest house, casita, or converted garage. Typically, homeowners create ADUs to provide income opportunities or for family reasons (i.e., to care for loved ones while still maintaining a sense of independence and a level of privacy for all involved). Prior to 2020, cities adopted regulations that greatly restricted ADUs and, in effect, often made it impossible for homeowners to build them. However, multiple bills were signed into law since, preventing municipalities from imposing such harsh restrictions on ADUs with the aim of addressing the housing crisis in California. For example, cities cannot impose minimum lot size requirements, minimum ADU square footage requirements, maximums on unit size less than 850 square feet for a one-bedroom or 1,000 square feet for a two-bedroom, parking requirements, and height limits under 16 feet for detached ADUs. Cities cannot mandate that the ADU be owner-occupied or require that all existing structures be brought up to code as a condition of permit approval. Further, cities are required to ministerially approve or deny a permit application within 60 days without a discretionary hearing, and if the permit is denied, the city must identify the deficiencies in the application and describe how those can be remedied. Moreover, if the city fails to render a timely decision, the application for permit is deemed approved. Finally, homeowners’ associations, try as they might, cannot block an owner from building an ADU. Given the recently relaxed standards, many homeowners have taken the initiative to build an ADU, or two, on their property. Indeed, the current law mandates that local agencies must allow at least two ADUs — one standard and one junior ADU (an ADU no larger than 500 square feet located within the primary residence). Similarly, investors and developers have used this opportunity to construct ADUs on multiple family lots, thereby increasing the property’s value and maximizing income production. New Opportunities However, come January 2024, a new opportunity arises: the ability to sell one or more ADUs separately from the primary residence. AB 1033 amends Government Code section 65852.2 to allow property owners with ADUs to sever and convey the real property interests by creating condominiums. Currently, the separate sale of an ADU is only permitted under very limited circumstances involving an ADU constructed by a qualified non-profit corporation, a low- or moderate-income buyer, and a recorded tenancy in common agreement. Further, the sale must be accompanied by significant deed restrictions, namely, both the primary residence and ADU must be preserved for low-income housing for 45 years. Thus, the current state of the law does not present significant investment opportunities. Beginning January 1, 2024, private owners, investors, and developers may be able to take advantage of the new law and sell separate interests in ADUs without the burdensome deed and buyer restrictions concerning low-income housing. At the outset, it is important to note that, while existing law requires local agencies to allow a separate sale or conveyance of an ADU under the limited circumstances referenced above, the amendment is permissive as to whether a local agency can adopt an ordinance allowing for the private party separate sale of ADUs and only provides for the minimum requirements for such regulations, meaning that this opportunity may vary greatly from city to city. However, if a municipality adopts such an ordinance, there are mandatory minimum prerequisites that an owner must tackle. First, the separate property interests must be created as condominiums pursuant to the Davis-Stirling Common Interest Development Act and in conformity with the Subdivision Map Act. The Davis-Stirling Common Interest Development Act The Davis-Stirling Common Interest Development Act governs the creation of residential real estate developments in which exclusive rights to use/ownership of land are coupled with undivided interests in land that is owned or enjoyed in common with others, such as condominiums. Here, the ADU(s) and the primary residence will have exclusive rights and the remainder of the lot (or at least a portion thereof) would be a common interest area to allow ingress and egress to the occupants. In creating these interests, the act requires that a declaration and a condominium plan be recorded. Further, a homeowners’ association must be created to manage the property. The Subdivision Map Act The Subdivision Map Act grants local governments the power to regulate how their communities grow by requiring them to enact local ordinances that property owners must comply with to obtain approval to divide their land into smaller parcels. Thus, regulations will vary by county or city. The act prescribes the form of the subdivision map and the general approval process after which the city clerk delivers the map to the county recorder. If a landowner fails to obtain approval, the act allows local agencies to prohibit the sale, lease, or financing of a parcel until approval is obtained and

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