Legislation

Legislative Advocacy for the Private Lending Industry

by Amy Kame
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A Focus on National, California and East Coast Legislation By Amy Kame The National Private Lenders Association (NPLA) is committed to protecting the interests of the private lending industry. Through strategic partnerships with the Mortgage Bankers Association (MBA) and various state associations, the NPLA ensures that its members are well-informed and actively involved in the legislative processes that impact their businesses. As part of this initiative, the NPLA holds bi-weekly meetings with its members, providing crucial updates on legislation and other important matters. These meetings empower members with the knowledge and resources they need to navigate the legal landscape effectively. The NPLA’s Mid-Year Legislative Update 2024 In the most recent NPLA meeting, members received a comprehensive national legislative update from the Mortgage Bankers Association (MBA), a California-specific legislative update from Robert Finlay of Wright, Finlay, and Zak LLP, and an East Coast legislative update from Jon Hornik of Private Lender Law. National Legislative Update Stephanie Milner, Associate Vice President, and Liz Facemire, Director of State Government Affairs at MBA, provided insights into the main issues and trends at the local and state levels impacting commercial real estate and NPLA members. The key areas of focus included: Building Performance Standards // Regulations mandating energy usage and greenhouse gas emissions for buildings. Local Law 97 in NYC has begun implementation, with penalties starting in 2030. MBA is working on an advocacy primer to guide policymakers. Good Cause Eviction // Laws listing reasons for eviction, potentially conflicting with existing landlord-tenant laws. MBA has successfully opposed such laws in several states but faces challenges in New York, where localities must opt-in. Rent Control // Policies that negatively impact the supply of affordable housing. MBA has opposed rent control proposals in states like Colorado and Nevada and continues to combat these policies. Licensing Concerns // In South Dakota, non-bank lenders were subjected to federal anti-money-laundering laws. MBA’s intervention led to the memo being rescinded. Foreign Ownership // Numerous bills across the U.S. aim to restrict foreign ownership of land, impacting commercial development. MBA monitors and opposes overly restrictive applications. Investment Equity Ownership // Legislation limiting large investment firms’ ownership of residential homes could affect the supply of multifamily property. MBA is vigilant in addressing these trends. These updates reflect the MBA’s extensive efforts to advocate for policies that support the stability and growth of the private lending industry. Their proactive approach ensures that NPLA members are well-informed and prepared to address these evolving legislative challenges. The NPLA and MBA meet monthly to discuss legislation, trends we are seeing, and ways we can partner to ensure our members are equipped to navigate their businesses effectively in a constantly changing regulatory environment. California Legislative Report Robert Finlay, Partner at Wright, Finlay & Zak, LLP, and Co-Chair of the NPLA’s Legislative Committee, updated members on California-specific legislation affecting the commercial lending industry. Notable updates include: Investment Ownership Restrictions // SB1212 — Prevented investment entities from buying real estate after January 1, 2023. It was quickly shot down. AB2584 — Limited business entities to own no more than 1,000 single-family units. Defeated with the help of the California MBA. AB1133 — Restricted home builders from selling multiple residential units to one owner. Also shot down. Foreclosure Limitations // AB2024 — Likely to extend the foreclosure process by adding 90 days through extensions tied to listing agreements and signed sales agreements. Effective January 1, 2025. Commercial Tenant Protections // SB1103 — Aimed to extend residential tenant protections to commercial tenants. MBA remains optimistic about defeating it. Mortgage Interest Deduction // AB1932 and AB2616 — Proposed limiting the mortgage interest deduction to primary residences, excluding investment properties. Opposed by MBA due to negative impacts on fix-and-flip lenders. Debt Collection Practices // AB1286 — Expanded the Rosenthal Fair Debt Collection Practices Act to cover small business debt and loan guarantees. Still being fought by MBA. Fix-and-Flip Regulations // AB968 — Requires fix-and-flippers to disclose all repairs and permits, effective July 1, 2024, increasing costs and delays for flippers. Usury Law Modifications // SB1146 — Clarifies that forbearance, extensions, or modifications of loans by licensed brokers do not violate usury laws. Helps consumers and lenders. With the support of the California MBA, significant strides have been made to protect investment ownership and streamline foreclosure processes, ensuring that NPLA members can operate effectively. California is often considered a bellwether state, meaning that its legislative trends frequently set the precedent for other states across the country. This status poses a risk to NPLA members because laws enacted in California can influence similar legislation in other states. For example, if California implements stringent regulations on investment ownership or foreclosure processes, other states will likely observe these developments andpotentially adopt comparable measures. This ripple effect can create a challenging regulatory environment for private lenders nationwide. By understanding and addressing California’s legislative landscape, NPLA members can better anticipate and prepare for similar changes in other states. Proactive advocacy and strategic planning are essential to mitigating the broader impact of California’s legislative trends on the private lending industry. East Coast Legislative Report Jon Hornik of Private Lender Law provided updates on East Coast legislation, focusing on rent control expansion, foreclosure rights limitations, and enhanced borrower protections: Covered legislation included: New York // Bill A10210 — Extends existing rent control laws until June 30, 2027. New Jersey // Bill 5595 — Expands the Residential Foreclosure Prevention Program. Bill A819 — Requires maintaining age-restricted housing during foreclosure. Bill A2269 — Expands eligibility in foreclosure actions for properties sold below fair market value. Bill A2535 — Amends the Fair Foreclosure Act, adding a private right of action for violations. Bill A3154 — Provides a 6-month forbearance for high-risk mortgage loans, halting foreclosure and freezing interest rates during this period. The legislative updates from the East Coast highlight areas of concern for private lenders, including rent control and foreclosure processes. The recent changes to foreclosure laws in New Jersey can significantly impact lenders by delaying the recovery of their investments. Extended foreclosure

The CARES Act and Your Retirement Investing

by Carole VanSickle Ellis
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The coronavirus stimulus could mean good things for your retirement accounts. When President Trump signed the $2 trillion coronavirus relief package into law March 27, 2020, most people’s attention was squarely on the small-business relief loans, the COVID-19 stimulus checks and how they might have their rent waived or their mortgage payment suspended. The Coronavirus Aid, Relief and Economic Security (CARES) Act also offered a number of other benefits to Americans, especially Americans in a position to stimulate their local economies in the weeks and months to come. For example, the legislation included some very big benefits for the owners of individual retirement account (IRA) plans, including the ability to make some contributions and withdrawals that normally are prohibited or heavily penalized. While many have accused policymakers of including these benefits as a way to sneak in loopholes for “rich investors,” the reality is that every single person who has a retirement plan needs to take a close look at how these changes might affect their retirement investing returns for the better. In some cases, these provisions might allow them to help their families through a very tough economic time as well. “The CARES Act is an unprecedented bill that will help many Americans impacted by COVID-19navigate economic uncertainties,” said Reneika Lightbourne, a business development specialist with Advanta IRA, a self-directed IRA custodian with more than $1 billion in assets under management. Reneika noted the legislation contains provisions that could help individuals and families experiencing financial hardship as a result of a coronavirus diagnosis. But she emphasized the importance of consulting trusted legal and tax advisors before making any withdrawals. “There are a ton of opportunities in this new code provision, and it is going to take everyone some time to unpack all of this,” warned Tim Berry, a self-directed IRA and 401(k) attorney with more than 20 years’ experience working with self-directed investors and their accounts. “We are all going to benefit from and hear about this legislation for years to come.” Changes in Distributions and Loans One of the provisions of the CARES Act that will have an immediate financial impact for IRA holders is penalty-free early distributions of up to $100,000 from retirement plans. Taxes on that distribution are due in three years, however, and are spread out over the three-year period. Berry noted that this three-year window creates an unusual and possibly beneficial scenario for investors. “If you qualify for that early, penalty-free withdrawal and take a distribution now that normally would have cost you a 10% penalty, you could save a lot of money,” he said. Berry cited an example of an investor who was already facing the decision of whether to withdraw money from his IRA account before the benchmark age of 59½ because doing so would allow him to purchase an investment property in his own name rather than in the self-directed retirement account, creating a significant advantage. Because the investor qualified for the penalty-free distribution, he was able to save almost $10,000 on the transaction, benefiting both his current and his future financial situation. “Another big benefit of this law is that taxes on distributions will be automatically spread out over the next three years instead of the client having to pay taxes on a $90,000 distribution in tax year 2020,” Berry said. “That means you might effectively lower the tax bracket your distribution is taxed on, and you effectively receive a three-year loan to pay the lower taxes.” Do You Qualify? Remember, no one automatically receives these benefits under the CARES Act. The benefits of the CARES Act are reserved for individuals who meet certain eligibility standards. According to the CARES Act itself, distributions must be coronavirus-related in nature. This is relatively broadly defined as: You are a taxpayer who has been diagnosed with coronavirus. You are also eligible if your spouse or dependent was diagnosed with the virus and, as a result, “suffered adversity.” Eligibility extends to individuals not formally diagnosed who suffered adversity in the form of quarantine, furlough, job termination, reduced work hours, or inability to work due to inadequate child care. Berry said, “I’m guessing that nearly everyone could say they have had their work hours reduced due to the coronavirus. It’s a pretty broad definition in the new law.” If you are unsure whether you are eligible or if you have a conventional retirement account that is sponsored by your employer, you may need to check with the plan sponsor. However, most sponsors say they are relying on employees to “self-certify” their eligibility. If you plan to take a loan from your 401(k) under the CARES Act, you will need to check with your sponsor (if applicable) and take that loan before Sept. 23, 2020. Investors should note that the ability to borrow against your 401(k) is not new, but the maximum amount permitted is higher than previously allowed. Before the CARES Act, you could take out $50,000 or 50% of your account balance. The new legislation permits you to take out $100,000 or 100% of your account balance. If you are unsure whether you qualify for CARES Act-related benefits, ask your trusted legal or tax professional. Although your company plan sponsor may be able to tell you whether they are permitting account holders to implement these strategies, neither your sponsor nor your custodian can necessarily provide you with full guidance regarding your eligibility. Only a tax or legal professional familiar with IRA and 401(k) policies, laws and tax code can do that.

Ohio Foreclosure Law Changes

by Brian Deas
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The changes bring advantages to investors who take the time to understand them. If you want to invest in foreclosed properties in Ohio, you should know about changes the state made a few years ago to its foreclosure law. The changes make it easier for investors to buy foreclosed properties. But, you have to know where to look and how the process works to take full advantage of the changes. First, Some Background In a judicial foreclosure state like Ohio, the property securing the loan cannot be offered for sale to the public until the court has entered a decree of foreclosure and issued an order of sale. The order of sale was traditionally issued only to the county sheriff. The mortgage foreclosure crisis revealed the weakness of this. Put simply, many sheriffs were not equipped from a staffing and technology standpoint to keep up with an ever-increasing volume of sale orders. The result was a large backlog of unsold properties. In some counties in Ohio, it was taking a year or more for the sheriff to sell the property. The backlog hurt Ohioans by contributing to neighborhood blight. Lenders were hurt because the delays in getting properties sold increased the cost of foreclosure. This was a political problem; both sides of the aisle wanted a solution. Members of the Ohio General Assembly asked the Ohio State Bar Association to form a group of interested persons and propose a legislative solution to the problem. Two Significant Changes After many meetings and much debate, the group agreed upon a solution that became law at the end of 2016. The law made significant changes to the foreclosure sale process. First, the law made it easier for judges to issue orders of sale to private auctioneers (technically, “private selling officers”) instead of the county sheriffs. The law did so by defining a process for private foreclosure auctions and filling in gaps that had existed in Ohio’s code. This brought certainty to the transfer of title by a private auctioneer in a foreclosure action. Second, the law requires sheriff sales to be brought into the modern era by creating a five-year timeframe for sheriffs to conduct auctions online. The law also eliminated local inefficiencies that had developed over the years. Notably, sale deposits were made uniform across the state, and sales could be postponed to a new date without having to meet the appraisal and publication requirements again. Political Compromises The solution included some political compromises. Judges wanted discretion over whether a private auctioneer could sell the property. The result is that the use of a private auctioneer happens on a case-by-case basis. Some judges flatly prohibit the use of a private selling officer. As a result, even when plaintiffs in foreclosure cases prefer to use a private selling officer, in some cases they have no choice but to use the sheriff. Sheriffs did not want to lose control over the appraisal process, so that process is still under their control. Sheriffs also did not want to lose control over sale publications, so private selling officers must use the sheriff’s preferred newspaper for the public notice of the sale. Finally, sheriffs wanted time to phase in their use of an online auction platform. Ohio has 88 sheriffs. Each sheriff has until September 2022 to conduct auctions online at www.realauction.com, the vendor chosen for online sheriff auctions. To date, the Franklin County Sheriff is the only one who has made the transition. The result is an imperfect but effective law. The backlog of unsold properties at the county sheriffs’ offices is gone. There is no reason why such a backlog should ever happen again since private auctioneers can now step in to help. The movement to online sales is also bringing the foreclosure sale process into the modern era. Understanding the Process With that as background, the question is: Where can you find foreclosure sales in Ohio today and how does the process work? It depends on who is conducting the auction—the sheriff or a private selling officer. In 87 of Ohio’s 88 counties, the sheriff still holds live auctions. The location, date and time of each auction are published in the local newspaper and posted to the sheriff’s website. Franklin County holds its sales at www.realauction.com. All private selling officer sales are held online. The two main websites for these sales are www.auction.com and www.privatesellingofficer.com. These websites allow you to sign up for alerts about upcoming auctions. Some private selling officers also advertise their foreclosure sales on real estate websites or social media platforms. An online foreclosure auction conducted by a private selling officer has advantages over a live auction conducted by a sheriff. Here’s why: First, searching for properties is easier if the auction is online. Second, you can bid remotely in an online auction, including from a mobile device, which reduces your cost of bidding and the hassle of sale cancellations. Third, whereas live auctions conducted by a sheriff move quickly—sometimes taking less than 60 seconds per property—online auctions must be open for bidding for at least seven days. So, there is less chance you will miss an auction. Fourth, if the auction is conducted by a private selling officer, a title company will handle all funds and record your deed. Title companies are usually much quicker than county sheriffs at doing these things. Finally, private selling officers are available to field questions about how the process works. The process includes unique risks no matter who conducts the auction. You have no right to inspect the property since the owner still owns it. Private selling officers and sheriffs have no authority to give you access to the property. Properties are sold as-is with no contingencies. Each sale must be confirmed by the court. The confirmation requirement, which takes 30-60 days on average, can be surprising news to investors who are used to buying REO properties. Once the sale is confirmed, you will have 30 days to pay the balance due. After

Northeastern States See Recent Changes in Lien Status Priority and Legislation

by Ralph Stebenne
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Regulators, lenders and servicers must keep a keen eye on developments. By Ralph Stebenne Recent legislative enactments and judicial rulings have lenders and their servicers paying close attention to unpaid homeowner and condominium assessments. New Jersey and New York have introduced newly crafted legislation that will require increasing surveillance and expenses in the servicing of loans from these Eastern Seaboard states. The District of Columbia has issued a recent judicial ruling that may allow an association’s lien to have priority over a mortgagee’s first lien. What’s Happening in New York? New York passed Bill A1800, an additional chapter to their Vacant Property Registration Act. This additional legislation demands extreme diligence in the servicing of at-risk borrowers. Bill A1800 puts added stress on servicers and their vendors to determine if a property is vacant in a timeframe that many servicers will find impossible to meet. The bill also carries extreme liabilities if followed to the letter of the law. To wit, a seven-day contact period to determine vacancy sets in motion a call for a series of drastic responses, including rekeying, winterizing, and boarding up doors and windows, where applicable. Condominiums and co-ops can be extremely difficult to contact and gaining entrance can be impossible. These issues alone are alarming, but what looks to be a last-second addition to the bill, Section K, states that the servicer “… pay homeowners’ association or cooperative fees as needed to maintain the property.” Servicers and lenders may be required to pay all fees as they come due before foreclosure in order to “maintain” the asset. This is a vague requirement and will likely need to be further legislated. Codification of this law will put even more liability on the lender and servicer, as it is evident what direction these laws are taking. And in New Jersey . . . New Jersey has broadened the super priority umbrella to include all associations and has extended the lien timeline to five years with proper filing of paperwork. New Jersey had instituted a six-month lookback for condominium associations, which has now been extended to include all associations. Bill A5002/S3414 also includes a renewable priority lien that can be carried back for five years. This bill overrides existing association governing documents. Servicers and their default servicing teams will have to pay close attention to all foreclosure and lien notification documents to accurately total liabilities that are now incurred in association foreclosures in the state of New Jersey. DC Developments The District of Columbia’s Court of Appeals issued opinion No. 16-CV-977 in September 2018. Here they reviewed the decision on LIU vs U.S. Bank Nat’l Ass’n, 179 A.3d 871, which concerned a foreclosure sale initiated by the association for unpaid dues and other fees. The association’s Notice of Foreclosure Sale advertised the sale of the unit subject to the first deed of trust. The sale took place in January 2013, with the successful bidder buying the unit for $11,000. In January 2015, Capital One filed to foreclose the unit, to which the buyer counterclaimed to quiet title. The initial trial court required the buyer to abide by the foreclosure sale agreement: that the purchase was subject to the original mortgage. The Court of Appeals reviewed the case and vacated the decision, forcing the buyer to abide by the initial agreement. The case was remanded to be reheard by the lower court, with the future decision reviewable by the Court of Appeals. It is the Court of Appeals’ opinion that the association’s enforcement of its super priority lien by foreclosure resulted in the “extinguishment” of the first mortgage, an outcome we had not seen in the District of Columbia. Several states have given lien priority to associations’ claims, allowing the foreclosure of the first lien, and the District of Columbia may be the next to join that group. It will be imperative for servicers to begin reviewing their portfolios and their District of Columbia loans for accuracy and completeness. This case, as well as developments in other legislative and judicial proceedings, needs to be carefully monitored. Servicing and foreclosure strategies need to be altered to meet these new developments. It is evident that there is a push to add more states to the super lien group and to expand the powers of associations.

Filling a Void in the Marketplace

by admin
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The NPLA serves as a full-time advocate for private lenders. Private lenders play a vital role in the health and growth of our national housing market and the broader economy. By making B2B (business-to-business) loans to real estate investors on deals that do not fit the standards of “conventional” lenders due to time frame or perceived risk, they play a crucial role in revitalizing local communities, preventing and ameliorating neighborhood blight, and creating new opportunities for homeownership. Despite their vital place in the financial ecosystem, private money lenders have historically held a near-invisible place in the lending industry. Leonard Rosen, CEO of the Pitbull National Hard Money Lending Conference, has plans to change that. “Private lenders are a valuable part of the economic infrastructure of the United States, but they are largely misunderstood and even mistrusted,” he explained. Rosen’s new organization, the National Private Lenders Association (NPLA), will fill what he described as “a void in our marketplace” by providing private lenders with “a strong, full-time voice in Washington D.C. and on a state level.” He added, “It is the NPLA’s job, our function as an association, to educate, inform and lobby for the growth of our industry and provide valuable information to legislators.” An Organization Unlike Any Other Rosen is passionate about the need for “full-time advocacy for the protection of our industry.” He described legislators as generally “confused” about private lending, which leads to well-intentioned but adverse policy decisions that hurt private lenders’ ability to deploy capital safely and productively in the real estate sector. “99.9 percent of our industry is making business-to-business loans. Lawmakers must understand how we work and, further, that we are not usurious in our efforts to deploy capital,” he said. “NPLA’s educational goals focus here.” The Foundation of the Financial Food Chain Under Fire Rosen noted private lenders are often self-directed investors using money in their individual retirement accounts (IRAs) to fund deals, making it imperative that those individuals’ interests be protected from a legislative angle just as any other lenders’ interests would be. “There is a whole food chain that begins with the deployment of capital from an investor,” he said. “These investors deploy billions upon billions of dollars into the marketplace every year, whether it be for the investor rehab market, the small-balance capital market, or midsize and large commercial projects. Support for all of these comes from private investment because traditional banks simply do not have the appetite for it.” Rosen, like the majority of the private lending population, worries electoral shifts looming in 2020 could bring in a new crop of legislators uneducated on how the private lending community functions and erroneously equating the industry with the check-cashing and payday-loan sectors. “People have good intentions when they want to regulate the private lending community. They want to protect the consumer. However, those good intentions adversely affect our industry when the legislator is uneducated about how private lending really works [in the real estate sector],” Rosen said. “NPLA’s strong, national voice, full-time representation in Washington, D.C., and its role as a clearinghouse for legislation that comes up on state levels will provide that education, create positive partnerships between lawmakers and private lenders, and, ultimately, fill that void,” he said. *** NPLA’s first meeting will be October 27, 2019, in Scottsdale, Arizona. To learn more about the NPLA private lending think tank—which will assemble leaders in the industry, including hedge funds, hard-money lenders, private lenders and investors in a series of panels dealing with legislative issues, education and ethics—visit NPLAOnline.com. You’ll find details on the association’s agenda and how to be involved. By Carole VanSickle Ellis Suggested Posts Perspective Grow Your Network, Grow Your Business by admin 0 Comments Profile Jeff Tesch Take the Reins at RCN Capital by admin 0 Comments Profile Jeremy Brandt: The Innovator Who is Making a Difference by admin Comment Off Regional Spotlight Kansas City: Stable Growth in a Hot Market by admin Comment Off Perspective It’s Time for a Checkup From the Neck Up by admin Comment Off Commercial Evaluating Your Commercial Real Estate Investment by admin Comment Off Commercial How to Become an Investor in the Best Investment in the World by admin Comment Off Risk Management Know the True Cost of Investor Insurance by admin Comment Off Single-Family Build-to-Rent Housing Garners Investor and Lender Interest by admin Comment Off Single-Family Here Come the iBuyers! by admin Comment Off