November 2009

Dear Real Estate Professional:

Federal: Homebuyer Credit Extended $8000 first time homebuyer credit was extended and, for those people who have owned and lived in a house for 5 years, there is a different credit available to them for $6500 if they wish to purchase a replacement home. Click here for an excellent summary that appeared in the Wall Street Journal.

DC: Substitute Trustee is a “Debt Collector” under FDCPA The U.S. District Court for the District of Columbia in Muldrow v. EMC Mortgage Corp., No. 08-1771 (D.D.C. Sept. 28, 2009), held that a substitute trustee under a deed of trust was a “debt collector” under the federal Fair Debt Collection Practices Act. (FDCPA).

In Muldrow, the substitute trustee, a law firm, was hired by a mortgage company to initiate foreclosure proceedings against a borrower that had defaulted on her loan. The substitute trustee sent the borrower a collection notice and subsequently notified the borrower that her property was being sold at a foreclosure sale to satisfy her debt. The borrower brought suit for violations of the FDCPA and the substitute trustee responded by arguing that it was not a “debt collector” within the meaning of the statute as well as that substitute trustees can be liable only under § 1692f(6) of the FDCPA, which applies to businesses engaged in the enforcement of security interests.

Upon examination, the court determined that the argument substitute trustees are exempt from the FDCPA's debt collection restrictions would be "contrary to the stated purpose of the FDCPA." The court concluded that substitute the substitute trustee was a debt collector under the FDCPA because it "undertook the role of debt collector and communicated with the plaintiff in a manner regulated by the FDCPA" and denied the substitute trustee's motion to dismiss.To view the motion denying the defendant's motion to dismiss click here. To view the court's opinion, please click here

MD: Unemployment Claims Will Trigger Automatic Rise in 2010 Taxes A mandatory annual review of the state's unemployment insurance trust funds revealed that the balance of the fund has been drastically reduced by increasing claims caused by recession-driven layoffs. Under Maryland law, the reduction in the balance of the trust triggers an automatic increase in unemployment insurance tax rates. Maryland Department of Labor, Licensing and Regulation spokeswoman Elizabeth Williams said that notices will soon be sent to employers indicating what their new unemployment tax rate will be for 2010.

Federal: ALTA 9 Endorsement Covers Right of First Refusal The Third Circuit in Nationwide Life Insurance Co. v. Commonwealth Land Title Insurance Co., 579 F.3d 304 (3rd Cir. (Pa.)), held that an ALTA 9 (comprehensive) endorsement affirmatively protects against loss in value due to a purchaser approval right created in a declaration of restrictions.

Liberty Mills Limited Partnership deeded property to PMI Associates in 1988 and the parties signed a declaration of restrictions which gave the seller the right to approve future purchasers of the property. In 2001, Nationwide Life Insurance lent $3.5 million to PMI, which gave a mortgage on the property. Commonwealth Land Title issued a loan policy to Nationwide.

PMI defaulted on its loan and turned over the property to Nationwide by deed in lieu of foreclosure. Nationwide found a buyer, but the successor to Liberty Mills refused to approve the buyer. Nationwide made a claim to Commonwealth under the ALTA 9 Endorsement attached to its policy and Commonwealth responded by denying the claim. Nationwide brought suit.

The Nationwide policy made exception in Schedule B, but the exception did not specifically recite the existence of the purchaser approval right. The court reversed the District Court and held that Nationwide's loss was not “expressly excepted” from coverage under the title insurance policy and the burden was on the title insurer to find and except rights of refusal or other title restrictions expressly.

DC: Real Property Tax Reform Classification Emergency Amendment Act of 2009 In furthering the termination of the concept of "Class 3 Vacant Property", the D.C. Council has proposed legislation to amend the definitions of Class 1, Class 2, and Class 3 Property as well as creating Class 4 Property. The new legislation proposes the following definitions:

Class 1 Property: Residential real property that is occupied, improved, and used exclusively for nontransient dwelling purposes.

Class 2 Property: All real property which is not Class 1, Class 3, or Class 4 Property.

Class 3 Property: All real property which is unimproved, and all improved real property that is unoccupied and which is also not classified as blighted property.

Class 4 Property: All improved real property which is classified as blighted property.

Click here to view the Act.

DC: OTR Promulgates Regulations to Limit Tax Sales After a failed emergency regulation, the OTR has promulgated a rule to amend 9 DCMR (Taxation and Assessments). The amendment would limit tax sales to real properties with tax delinquencies of $1,200 or more. Click here to view the rulemaking in District of Columbia's Register.

DC: Tax Sale Rescheduled The OTR has rescheduled the postponed September tax sale to November 30.

DC: Updated Condo and Coop Forms The Department of Housing and Community Development has updated several forms to incorporate recent legislative changes and recent case law from the D.C. Court of Appeals. The updated forms are also in the process of being translating into Spanish, which will also be available when completed.

DC: The Tenant Opportunity to Purchase Act (TOPA) Regarding Foreclosure Sales TOPA was enacted in 1980 and establishes that an owner must give tenants an opportunity to purchase the property before an owner may sell residential tenant-occupied real property. In 2006, the D.C. Council amended the act to exempt foreclosure sales from TOPA requirements. However, while a foreclosure sale is exempt, the out-sale is not. Therefore, lenders who have taken over residential properties that have fallen into foreclosure, but are still occupied by tenants must satisfy TOPA requirements before the property is sold. There is an untested school of thought that the sale from a Trustee in the form of a Trustee's Deed is still "incident" to the foreclosure and exempt from TOPA.

Under TOPA, the owner must give each tenant a Notice of Sale and Opportunity to Purchase on a D.C. form that provides the tenants' rights and time periods for exercise of those rights. If tenants choose not to vacate the foreclosed property, the requirement can be difficult to accomplish because the lender's servicing company most likely does not have knowledge of who are the actual occupants. Once the tenant is identified and the TOPA notice is delivered, tenants are afforded a specified time to respond. However, if the tenant fails to exercise his or her rights, the tenant generally has the right to remain as a tenant in the property even if the lease expires as long as the lease terms are not violated.

Sellers of these foreclosed residential properties should make sure to meet TOPA requirements in order to avoid costly TOPA litigation as well as delaying a sale in order to provide proof of TOPA compliance.

All Jurisdictions: Analysis of Housing Market for 2010-2011 While there has been several trends to indicate the housing market has finally bottomed, the outlook for the housing sector remains precarious. Click here to view an article analyzing the housing market, including mortgages, single-family construction, multi-family home construction, buying conditions, and new home sales, existing home sales, as well as home prices. Permission to include the article in this newsletter was given by Wells Fargo/Wachovia.

DC: Etchebarne-Bourdin v. Radice - Interpreting D.C.'s “Long-Arm” Statute The case interprets D.C.'s “long-arm” statute, D.C. Code § 13-423 (2001), specifically the two subsections of the statute which authorize D.C. courts to exercise jurisdiction over non-resident defendants who transact any business in the District, D.C. Code § 13-423 (a)(l); or who “caus[e] tortious injury in the District of Columbia by an act or omission outside of the District of Columbia if [they] regularly do[] or solicit[] business, engage[] in any other persistent course of conduct, or derive[] substantial revenue from goods used or consumed, or services rendered, in the District of Columbia.” D.C. Code § 13-423 (a)(4). When the conduct of a defendant satisfies either one of these sections, the court may exercise personal jurisdiction only if a claim for relief arises from acts enumerated in the statute.

The Court of Appeals addressed for the first time whether all of the requirements set out in section 13-423(a)(4) must be linked to the claim for relief in a particular case, to permit the exercise of personal jurisdiction. The court held that the nexus requirement under subsection (b), as applied to the basis for jurisdiction set out in subsection (a)(4), does not require that the claim arise from what we consider to be independent “plus factors.” These “plus factors” are required for the purpose of ensuring that exercising jurisdiction over a defendant where the claim for relief is based on conduct outside the forum comports with due process. To view the opinion click here.

All Jurisdictions: RESPA rule enforcement delayed. The US Department of Housing and Urban Development ('HUD") announced that it will not enforce for a 120 day period new, sweeping regulatory changes to the Real Estate Settlement Procedures Act (RESPA) set to go into effect January 1, 2010. The new regulations will still go into effect on January 1, 2010, but the board overseeing enforcement of these new rules will “exercise restraint in enforcing” them. HUD wants all lenders to make a good faith effort to comply with the new regulations beginning on January 1. The rules involve the new Good Faith Estimate and HUD-1 Settlement Statement forms.

DC: Recorder of Deeds (ROD) checklist ROD uses a checklist to determine whether or not a document is suitable for recording. This checklist contains items which are not included in the statutes or regulations, but which will, nonetheless, prevent the document from being accepted. Click here for a copy of the checklist.

DC Massive Changes Proposed to DC Business Organizations Code. With each issue of this newsletter, we include a link to a chart that covers proposed legislation of interest to our readership. We point out however two proposed DC Statutes of particular interest: Bill 18-500 is a massive bill that would convert the Business Organization Code. It discards existing statutes about corporations, LLC's etc. and substitutes therefor a uniform law adapted slightly to DC by an independent panel of attorneys whom Councilmember Cheh asked to review the matter. This Bill merits review and the public hearings of the Council start on December 5, 2009.

DC Co-op associations have to pay delinquent recordation/transfer taxes of their members. There is now legislation that imposes a transfer and recordation tax on transfers of co-ops. One provision requires that co-op associations are responsible for the payment if the payment is not made by the buyer and/or seller. The emergency version of the Cooperative Housing Association Economic Interest Recordation Tax of 2009 that was passed by the Council as Emergency Bill 18-503 and awaits the Mayor's signature (he has until November 23rd to sign). The Emergency legislation would expire 90 days after enactment. There has been a temporary Bill 18-504 introduced which is set for a vote by the Council on December 1, 2009, which, if passed, would stay in effect for 225 days. There has been no permanent legislation introduced. To view Emergency Bill 18-503 click here.

DC Conversion Bill 18-179 The "Tenant Opportunity to Purchase Preservation Clarification Act of 2009" seeks to address an issue recently decided by the DC Court of Appeals. The Bill would clarify that the mailing by a tenant of the tenant's interest to purchase would suffice, rather than the current provisions of 42 D.C. Code 3404 which provides that receipt by the Mayor was required. If this Bill were to pass, it would be difficult for the title industry to underwrite sales involving tenants, because the only information about whether the tenants have preserved their rights would come from the tenants themselves (who may not always be objective). There is a public hearing on this Bill on November 30 at 11:00 a.m. Those wishing to testify should contact Drew Hubbard at (202) 727-8230 or email him at dhubbard@dccouncil.us. To view Bill 18-179 click here.

DC: Construction Code The District has, in effect, repealed the DC Construction Codes that were adopted in 2003 (which consisted of the 2000 edition of the International Code Council ("ICC") International Building, Residential, Property Maintenance, and Fire Codes (among others) and substituted therefor the 2006 edition of the ICC Building Code. See the DC Register Volume 55 - No. 52, Part 3 of 3 for full reprint or click here to view the bill.

DC: Jackson & Campbell, P.C. makes available a CHART OF PENDING D.C. LEGISLATION.

OTHER LEGAL UPDATES:

Jackson & Campbell, P.C.'s Trust & Estates Legal Update
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Please feel free to circulate this newsletter to others in the industry, both within and outside your office.

Sincerely,

Roy L. Kaufmann of the Real Property and Asset Management Group
Jackson & Campbell P.C.

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email: Roy L. Kaufmann at rkaufmann@jackscamp.com
voice: (202) 457-1600
web: www.JacksCamp.com

The editor acknowledges with thanks the research and preparation for this newsletter by Nicholas C. Lipresti, an intern with the Firm.

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The contents of this Update are intended for general informational purposes only and should not be relied upon as legal advice or as a substitute for consultation with a qualified attorney. Moreover, the mailing hereof is not intended to create nor does it constitute an attorney-client relationship.

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