In This Issue... - Escrow Institute of California

Publication of the Escrow Institute of California
First Quarter/2009
IT’S TIME TO MAKE
YOUR RESERVATIONS
for the
2009 SPRING CONFERENCE
May 15-17, 2009
at
CROWNE PLAZA VENTURA BEACH HOTEL
Ventura, California
The upcoming Spring Conference is just around the corner!
Please take a moment and review the Program Agenda and make your Conference reservations NOW.
Registration Form can be found on the website in "Events."
Last day to make Resort accommodations is Tuesday April 23rd at $119.00 per night. After April 23,
rooms will be subject to availability and prevailing room rate. Self parking for Conference attendees
is $5.00 per night.
(continued on Page 4))
LEGISLATIVE CORNER
With the election of a new President
brings a renewed focus and energy at
the national level to enact economic
reform and stimulus legislation in an attempt to jolt
the economy out of its deep recession. On February
17, 2009 President Obama signed into law the $787
billion “American Recovery and Reinvestment Act”,
of which it is estimated that California will receive as
much as $85 billion in federal funds and tax benefits for
education, infrastructure investment, energy efficiency,
housing, health and human services, transportation,
science and technology, unemployment assistance and
various other programs.
The California legislature passed and sent to the
Governor a package of legislation that will allow the
State to take advantage of some of these federal economic
(continued on Page 3)
In This Issue...
Feature
Page
California Home-Sales............................ 6
Thank You EPAC Contributors.............. 7
CALFIRPTA for '09..................................... 8
Labor Law Corner..................................... 9
IRS Lien Relief...........................................10
Welcome New Members......................11
Securities v. Real Estate........................12
Conference Sponsors............................13
Escrow Institute News
First Quarter 2009
LEGISLATIVE
(continued from Page 1)
stimulus dollars for immediate priorities identified under
the American Recovery and Reinvestment Act. These
measures include:
SB24 XXX – Which changes Medi-Cal eligibility
reporting for children to enable California to receive
its full share of Federal Medical Assistance Funds.
This bill will enable California to receive $10.1 billion
in additional funds to provide health care services for
children through December 2010.
SB27XXX – Will expedite $443 million in federal
funding for state water projects.
AB 20XXX – Provides for distribution of $2.6 billion
for highways and local roads throughout California.
AB23XXX – Allows for an additional 20 weeks of
Unemployment Insurance (UI) benefits of which
California will receive up to $3.2 billion.
Escrow Institute Officers
Judy Gooler
President
Board of Directors
PJ Garcia
Vice President National Affairs
Beulah Stidham
Vice President State Affairs
Paula Swallow
Maggie Waller
Co-Vice Presidents - Education
Tricia Vagt
Vice President - Membership
Dave Brooks
Treasurer
Genia Engelstad
Secretary
Tim Egan
Chief Executive Officer
Escrow Institute News is the quarterly publication of the Escrow Institute of California. While this newsletter is designed
to provide accurate and authoritative information on the
subjects covered, the Association is not engaged in rendering
legal, accounting or other professional or technical services.
Accordingly, the Association cannot warrant the accuracy of
the information provided herein. If legal advice or expert assistance is required, the service of a competent, professional
person should be sought.
AB29XXX – Qualifies California for an additional
$844 million in federal stimulus funds by creating a
new “alternative base period” that will allow more
unemployed Californians to qualify for UI coverage.
State Legislation
SB 204 (Benoit/Runner) – Under existing law,
each escrow license must pay to the Department of
Corporations an annual license fee of up to $2,800
for each office location. This license fee is operative
until January 1, 2010, after which the license fee would
revert back to a fee where the escrow licensee would
pay based on the pro rata share of the DOC’s annual
administrative costs without any cap on the amount
of the fee a licensee would pay. SB204 as proposed
to be amended would eliminate the current “sunset”
provision relative to the current annual license fee and
the alternative pro rata license fee and instead retain
the flat license fee of $2,800.
Institute Position – Sponsor/Support
AB 957 (Galgiani) – The Buyer’s Choice Act” would
prohibit mortgagees, beneficiaries under a deed of
trust or other persons who acquired title to residential
real property at a foreclosure sale from, as a condition
of selling that real property to a buyer, requiring the
buyer to purchase title insurance or use certain escrow
services in connection with the sale from a company
specifically selected by the seller. In addition, the
seller would not be allowed to disapprove of the use
of a title or escrow company chosen by a buyer unless
the seller has good cause
Institute Position: Sponsor/Support
California Tax Credit for New-Home Buyers – As
part of the package of bills to reach a compromise
on the recently enacted state budget, Governor
Schwarzenegger signed into law on February 20,
2009 Senate Bill 15XX (Ashburn) that provides of
up to $10,000 tax credit for the purchase of a newly
constructed home for a “qualified principal resident”
that has “never been occupied” on or after March
1, 2009, and before March 1, 2010. The legislation
provided a one-time allocation of $1000,000,000 for
(continued on next page)
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Escrow Institute News
LEGISLATIVE
(continued from Page 2)
the tax credit and will be available on a first-come,
first-served basis until the funds are exhausted. Firsttime and move-up buyers alike are eligible and there
are no income limits. The state credit can also be
combined with the now $8,000 federal tax credit for
first-time buyers.
To qualify for the tax credit the escrow agent must fax
to the Franchise Tax Board within one week (seven
calendar days) after the close of escrow a complete Form
3528-A. “Application for New Home Credit” (please
click here to download the FTB Instructions and Form).
Escrow must fax the completed form 3528-A to FTB
at (916) 845-9754, and provide a copy to the buyer.
Please note only faxed copies will be accepted.
In a recent statement from the Franchise Tax Board,
it was noted that for the first three weeks the FTB had
received 1,710 applications for $16.6 million for the
tax credit. At this rate the California Building Industry
Association predicts that the tax credit would be used
up during the summer months.
Federal Legislation
Predatory Lending Legislation Introduced – Senior
members of the House Financial Services Committee
introduced HR 1728, the Mortgage Reform and AntiPredatory Lending Act of 2009, in an attempt to curb
predatory lending practices. The proposed legislation
would subject all mortgage originators to a federal duty
of care standard such as: licensing and registration,
as applicable under state or federal law; present to
consumers loans that a consumer will have the ability
to repay and for which a consumer receives some level
of net tangible benefit, especially for any refinancing,
and that do not have any predatory characteristics; make
full disclosures to consumers; and certifying lender’s
compliance with mortgage origination requirements
including a mortgage originator’s unique identifier
in the loan documents. The bill would also ban yield
spread premiums and other compensation that could
cause mortgage originators to steer applicants toward
more costly mortgages.
First Quarter 2009
MBA Unveils Mortgage Lending Proposal
The Mortgage Bankers Association (MBA) released
a proposed legislative initiative entitled “Mortgage
Improvement and Regulation Act of 2009” to establish
new uniform national standards. The proposal which
was released on March 24 would create a new Federal
Mortgage Regulatory Agency (FMRA) to regulate
independent mortgage bankers and brokers under
a national licensing and regulation program. The
proposal would require HUD and the Federal Reserve
to work with the FMRA to develop simplified consumer
disclosure forms including combining RESPA and Truth
in Lending Act (TICA) disclosures. To accomplish this,
HUD would be required to withdraw the new RESPA
regulations, and create a new good faith estimate (GFE)
and HUD-1 in coordination with Federal Reserve
and FMRA. The combined RESPA and TILA GFE
would include: a one-page, box-type summary of the
estimated costs and terms of the loan; a grouping of
key settlement costs into major categories based on
which service provider receives them, disclosure of the
total cost for each category and then a total estimated
cost; the maximum amount the mortgage broker will
receive; and the total estimated settlement costs and
monthly payments. The MBA proposal was submitted
to both the House Finance Services and Senate Banking
Committees.
HAPPY SPRING!
3
Escrow Institute News
First Quarter 2009
CONFERENCE
(continued from Page 1)
Tentative Program
Friday, May 15
10:00 am – 2:00 pm
1:00 – 5:00 pm
2:30 – 4:30 pm
5:00 – 7:00 pm
Board of Directors Meeting
Registration for Conference & Management Specialists
Management Specialists
Welcome Cocktail Reception
Saturday, May 16
8:00 – 9:00 am
Buffet Breakfast
Registration
9:00 – 9:30 am
Welcome/Opening Remarks
Convener:
Judy Gooler – Monrovia Escrows
President, Escrow Institute of California
9:30 – 10:30 am
KEYNOTE ADDRESS: Ivy Jackson and/or Laura Gipe – Office of Real
Estate Settlement and Procedures Act (RESPA) & Interstate Land Sales
U.S. Department of Housing & Urban Development (Invited)
This past November HUD issued the long anticipated final RESPA rule.
Ms. Jackson and Ms. Gipe are directly responsible for the drafting and ultimate
implementation and enforcement of this new rule. This session will be the
opportunity to understand how the RESPA rule will impact the escrow industry.
10:30 – 10:45 am
BREAK
10:45 – 11:45 am
REAL ESTATE TAX UPDATES AND RECENT DEVELOPMENTS
Presenter: Tony Phillips – Downstream Exchange Company
Mr. Phillips will review some of the recent and proposed tax legislation that has
emerged and its impact on real estate investments and development. Tony is
recognized as one of the top speakers and experts on real estate tax law including
§1031 like-kind exchanges, and will entertain with humorous antidotes and references on federal and state tax policy.
12:00 – 1:15 pm
LUNCHEON KEYNOTE SPEAKER – ASSEMBLYMAN PEDRO NAVA,
CHAIRMAN, ASSEMBLY BANKING & FINANCE COMMITTEE,
CALIFORNIA STATE ASSEMBLY
Assemblyman Nava is Chair of the Assembly Policy Committee that has legislative jurisdiction and oversight of the lending and mortgage industries, including
the escrow industry. As such, Mr. Nava is right in the heart of ongoing deliberations concerning the state’s response to address the mortgage and lending crisis.
4
First Quarter 2009
Escrow Institute News
CONFERENCE
(continued from Page 4)
1:30 – 2:30 pm
ERIN TOLL, DIRECTOR, COLORADO DIVISION OF REAL ESTATE
Back by popular demand Erin Toll the Chief for the Colorado Division of Real
Estate to share some of the recent state and national initiatives and what may be
on the horizon for the next couple years as industry groups and regulators forge
working relationships in an attempt to head off costly industry enforcement and
regulations.
2:30 – 2:45 pm
BREAK
2:45 – 4:30 pm
DOC REGULATORY PANEL
Convener: Jeff Behm, Behm & Company, An Accountancy Corporation
Panelists: David Duong – Senior Examiner, Department of Corporations
Kathleen Partin – Special Administrator, Department of Corporations
4:30 pm
ADJOURN FOR THE DAY – Free to Enjoy the Evening
5:00 – 7:00 pm
WINE TASTING EVENT – Sponsored by Golden State Overnight
Weaver Wines Taste Lounge Shop
14 S. California Street
Cost: $20 per person
Sunday, May 17
8:00 – 8:45 am
Buffet Breakfast
9:00 – 10:00 am
FEDERAL/STATE LEGISLATIVE/REGULATORY UPDATE
Panelists: Beulah Stidham – Vice President, State Affairs
PJ Garcia – Vice President, National Affairs
Judy Gooler – President
Tim Egan – Chief Executive Officer
10:00 – 10:15 pm
BREAK
10:15 – 12:00 pm
INDUSTRY PANEL – E-CLOSING AND E-SIGNATURES
The California Uniform Electronic Transactions Act authorizes the use of electronic signatures and storage of records. The Department of Corporations has
recently provided information on issues relative to the use of electronic signatures
and storing of records electronically. This panel session will provide an update
and possible demonstration of the latest electronic technology, as well as other
valuable background information as we shift from paper transactions to electronic
transactions and storage.
12:00 pm
CONFERENCE ADJOURNS
5
Escrow Institute News
First Quarter 2009
The Realtor group’s Unsold Inventory Index for resale
homes was 6.5 months in February, compared with
15.3 months in February 2008 – this index indicates
the amount of time it would take to deplete the supply
of for-sale homes at that month’s sales pace.
It took a median 51.5 days to sell a single-family resale
home in February, compared with 69.3 days in the same
month last year.
California Home-Sales
Rate Outpaces ‘08
By Inman News
The sales pace for previously owned single-family
homes in California soared 83 percent year-overyear in February while the median price plunged
40.8 percent, the California Association of Realtors
reported this week.
The seasonally adjusted annual rate of sales dipped
0.8 percent and the median price fell 2.3 percent in
February compared to the previous month. The sales
rate is a projection of a monthly total over a 12month period, adjusted to account for typical seasonal
fluctuations in sales activity.
Regionally, the statewide Realtor group reported that
sales climbed 203.1 percent year-over-year in February
in the High Desert region – the highest among the
19 regions tracked. The Santa Barbara South Coast
region was the only region with a sales-rate decline
(-9.4 percent) during that period.
The median single-family resale home price dropped
most in the Monterey region (-61.1 percent) and least
in the Northern California region (-22.3 percent) yearover-year in February.
The statewide median single-family resale home price
was $247,590 in February 2009, down from $418,260
in February 2008. And in February the state was on a
pace for 620,410 annual single-family home sales.
6
A separate statewide report – that tracks median price
changes for new and resale condos and single-family
homes in more than 300 California cities, city areas
and counties in California – found that the largest
year-over-year decline in February was in Richmond
(-77.5 percent), followed by Tarzana (-67.6 percent)
and Desert Hot Springs (-66 percent).
Other communities with major price declines included:
San Pablo (-65.3 percent), San Juan Capistrano (-64.2
percent), Atwater (-64.1 percent), San Bernardino (-60.5
percent), Monterey County (-58.2 percent), Adelanto
(-57.3 percent), and Vallejo (-57 percent).
Ladera Ranch, in Orange County, was the lone
community reporting a median-price increase (up 17.4
percent) from February 2008 to February 2009.
And the communities with the slightest year-over-year
declines included: Folsom (-0.1 percent), Fountain
Valley (-0.5 percent), San Gabriel (-0.7 percent),
Huntington Beach (-1.1 percent), Cypress (-1.7
percent), Agoura Hills (-3.5 percent), Redondo Beach
(-4.5 percent), Valley Village (-6.2 percent), and Irvine
(-6.3 percent).
North Highlands had the lowest median home price in
February 2009 ($82,500), followed by California City
and San Bernardino ($83,000), Desert Hot Springs
($84,000), Atwater ($85,000), Adelanto ($85,500),
Banning and Richmond ($90,000), Yucca Valley
($105,000) and Merced County ($107,000).
The cities and city areas with the highest median
price in February: Santa Barbara ($897,500), Beach
Cities ($850,000), West Los Angeles ($646,500), San
(continued on next page
Escrow Institute News
HOME-SALES
(continued from Page 6)
Francisco ($640,000), Arcadia ($635,000), Redondo
Beach, San Mateo and San Clemente ($630,000),
Ladera Ranch ($604,500), and Huntington Beach
($592,500).
The National Association of Realtors reported that the
sales pace of resale homes rose 5.1 percent from January
to February and fell 4.6 percent compared to February
2008. Meanwhile, the U.S. median price dropped 15.5
percent from February 2008 to February 2009.
And the Census Bureau reported this week that sales
of new single-family homes jumped 4.7 percent from
January to February but were down 41 percent from
February 2008. The California Building Industry
Association report that single-family permits in
2009
GENERAL
MEMBERSHIP
MEETINGS
July 9
September 10 (Board Elections)
November 12
Please check the website at www.
escrowinstitute.org in the “Events” section
for any updated information on these
meetings and dates in 2009..
First Quarter 2009
THANK YOU
TO
E-PAC CONTRIBUTORS
FOR 2009
Anchor Seaport Escrow, Inc.
Betty Betts Escrow, Inc.
California Sunset Escrow
Cannon Escrow, Inc.
Capital City Escrow, Inc.
Cimarron Escrow, Inc.
Commercial Escrow Services, Inc.
Covina Escrow Company, Inc.
Discovery Escrow Company
Downey Escrow Company
Eagle Escrow Company
Emerald Escrow, Inc.
GB Escrow, Inc.
Laguna Escrow Services, Inc.
Mariners Escrow Corporation
Monrovia Escrows, Inc.
Nettie Becker Escrow, Inc.
Pacific Coast Escrow Corporation
Rancho San Pedro Escrow Services
Seright Escrow, Inc.
South Hills Escrow Corp.
The Escrow Provider, Inc.
Tiempo Escrow, Inc.
Tiempo Escrow II
Trans-National Escrow Corp.
Tulare County Escrow Company
Westport Escrow
Wilshire Escrow Company
I've learned that the secret of
growing old gracefully is never to
lose your enthusiasm for meeting new people, seeing new
places and doing new things.
– Unknown
7
Escrow Institute News
CALFIRPTA FOR 2009
NEW LAW BRINGS CHANGES FOR
NEW YEAR
By Michael A. Haas, CPA
Morton Alan Haas & Co.
The California state legislature passed Assembly
Bill 3078 which the Governor signed into law on
September 25, 2008 bringing three amendments to
CALFIRPTA – the withholding rules applicable for
sales of California real estate. The Franchise Tax
Board has released the CALFIRPTA forms to be used
for 2009 closings. The only changes to the forms and
the corresponding instructions were to inform and
implement the changes mandated by AB 3078.
The first change is that non-California partnerships
now are subject to CALFIRPTA. This is a change from
the past where all partnerships were exempt from the
withholding rules. The law will be applied like it is
for corporations: only those partnerships that have no
business in California are subject to the withholding.
The second change is minor in that it amends
the alternate withholding rate for non-California
S-Corporations that are subject to the withholding
rules. As you recall, sellers can elect to have
withholding done at 3 1/3 percent of the sales price or
at the maximum tax rate of the estimated gain on the
sale of the property. The new law changes the alternate
rate for non-California S-Corporations to 10.8 percent
(12.8 percent for financial S-corporations).
The final change is the most significant of the three.
Prior to 2009, in the case of seller carry-backs
(installment sales), buyers had the option of electing
to pay the withholding tax on behalf of the sellers
as they made principal payments on the notes. If the
buyer did not make this election, all of the withholding
tax would be paid to the FTB at the close of escrow.
For all sales after December 31, 2008, the buyers
no longer have the option to withhold in the case of
seller carry-backs. It now is mandatory that buyers
8
First Quarter 2009
withhold on the principal portion of payments made
to the sellers while escrow will withhold only on the
down payment portion of the sales price.
Remember, you are allowed to charge $45 per seller
for any withholding you do or if you provide assistance
even if no withholding results.
For those escrows that opened in 2008 but that close
in 2009, a new Form 593-C does not have to be
submitted by the sellers. However, you may want to
have an updated form completed if any of the new
law changes impact how (or if) withholding will be
applied on the sale.
The address for remitting the withholding is:
FTB
PO Box 942867
Sacramento, CA 94267-0651
It is recommended that payments be sent certified or
using express mail for proof of mailing.
All forms can be located at the FTB’s website www.ftb.
ca.gov. Click on “Forms” and select 2009. In addition,
Publication 1016, which gives all the guidelines on
real estate withholding, can be downloaded from that
site. Forms can be obtained via e-mail or by writing to
Tax Forms Request Unit, FTB, PO Box 307, Rancho
Cordova, CA 95741-0307.
Also, as a reminder, all of the Form 593 series are
available on-line at the FTB website in a “fill-in”
format where sellers can complete the forms on line
and then print them out for submission. In addition,
you can complete any of the applicable forms on-line
as well.
Morton Alan Haas & Co. are Affiliate Members of the
Escrow Institute.
First Quarter 2009
Escrow Institute News
Labor Law Corner
No Obligation to Rehire Laid Off Employees – But Be Consistent
By Dana Leisinger, Senior Helpline Consultant
California Chamber of Commerce
We had to lay off several employees in the last few months. However, now we have a shot at getting a contract
which, if we get it, will mean that we need to hire on several employees. Do we have to rehire the same people
we lot go? Some of them were poor performers, and we would prefer not to hire them.
Basic hiring issues apply. For example, employers must be careful not to use hiring preferences that result in a
discriminatory impact.
Don’t Use Layoff for Firing
Keep in mind that a layoff is not a good way to handle what should have been a termination. For example, many
employers want to terminate an employee, but because of failure to properly document the issues, the employee’s personnel file may be conspicuously missing disciplinary write-ups.
If the employer classifies the termination as a layoff, but then rehires into the position shortly after, there can be
a claim of subterfuge and discrimination if the terminated employee is in a protected category and the rehire is
not.
Follow Internal Policies
Unless the employer has specific policies outlining rehiring employees, the following points should be kept in
mind.
• First there is no obligation to rehire employees who were subject to a layoff. If the employer has implemented special procedures regarding rehiring, however, it must comply with its own internal policies.
• If a collective bargaining unit is in place, the employer must take care to assure it complies with the
terms of the collective bargaining agreement.
• If the employer has made any promises to the former employees, it must comply with said promises or
potentially be liable to a claim of breach of contract.
The employer may want to hire back former employees who are reliable and experienced. Keep in mind that
training a new employee can be a costly matter, and good employees who the employer lost purely to the economic downturn still may be available for work.
Major rehiring should involve careful examination of the skill sets the business needs. It is wise to consult with
an employment law attorney for guidance in delicate matters.
Reprint: California Chamber of Commerce “Alert” newsletter – March 20, 2009
9
Escrow Institute News
First Quarter 2009
serves as a public notice to other creditors that
the government has a claim on the property.
IRS Newswire
December 16, 2008
Issue Number: IR-2008-141
Inside This Issue
IRS Speeds Lien Relief for Homeowners
Trying to Refinance, Sell
WASHINGTON — The Internal Revenue Service
today announced an expedited process that
will make it easier for financially distressed
homeowners to avoid having a federal tax lien
block refinancing of mortgages or the sale of a
home.
If taxpayers are looking to refinance or sell a home
and there is a federal tax lien filed, there are options.
Taxpayers or their representatives, such as their
lenders, may request that the IRS make a tax lien
secondary to the lien by the lending institution that
is refinancing or restructuring a loan. Taxpayers
or their representatives may request that the IRS
discharge its claim if the home is being sold for
less than the amount of the mortgage lien under
certain circumstances.
The process to request a discharge or a
subordination of a tax lien takes approximately
30 days after the submission of the completed
application, but the IRS will work to speed those
requests in wake of the economic downturn.
“We don’t want the IRS to be a barrier to people
saving or selling their homes. We want to raise
awareness of these lien options and to speed our
decision-making process so people can refinance
their mortgages or sell their homes,” said Doug
Shulman, IRS commissioner.
“We realize these are difficult times for many
Americans,” Shulman said. “We will ensure we
have the resources in place to resolve these
issues quickly and homeowners can complete
their transactions.”
Filing a Notice of Federal Tax Lien is a formal process
by which the government makes a legal claim to
property as security or payment for a tax debt. It
10
In some cases, a federal tax lien can be made
secondary to another lien, such as a lending
institution’s, if the IRS determines that taking
a secondary position ultimately will help with
collection of the tax debt. That process is called
subordination. Taxpayers or their representatives
may apply for a subordination of a federal tax
lien if they are refinancing or restructuring their
mortgage. Without lien subordination, taxpayers
may be unable to borrow funds or reduce their
payments. Lending institutions generally want
their lien to have priority on the home being used
as collateral.
To apply for a certificate of lien subordination,
people must follow directions in Publication 784,
How to Prepare an Application for a Certificate
of Subordination of a Federal Tax Lien. Again,
there is no form but there must be a typed letter
of request and certain documentation. The
request should be mailed to one of 40 Collection
Advisory Groups nationwide. See Publication
4235, Collection Advisory Group Addresses, for
address information.
Taxpayers or their representatives may apply
for a certificate of discharge of a tax lien if they
are giving up ownership of the property, such as
selling the property, at an amount less than the
mortgage lien if the mortgage lien is senior to the
tax lien. The IRS may also issue a certificate of
discharge in other circumstances if the taxpayer
has sufficient equity in other assets, can substitute
other assets, or is able to pay the IRS its equity
in the property. Without a tax lien discharge, the
taxpayer may be unable to complete the home
ownership change and the ownership title will
remain clouded.
To apply for a tax lien discharge, applicants must
follow directions in Publication 783, Instructions
on How to Apply for a Certificate of Discharge of
a Federal Tax Lien. There is no form but there
must be a typed letter of request and certain
documentation. The request should be mailed to
one of 40 Collection Advisory Groups nationwide.
See Publication 4235 for address information.
(continued on next page)
First Quarter 2009
Escrow Institute News
IRS
(continued from Page10)
The IRS also urges people to contact the agency’s
Collection Advisory Group early in the home sale
or refinancing process so that it can begin work on
their requests. People sometimes delay informing
lenders of the tax liens, which only serves to delay
the transaction.
Currently, there are more than 1 million federal tax
liens outstanding tied to both real and personal
property. The IRS issues more than 600,000
federal tax lien notices annually.
For the Garden of Your Daily Living
Plant Three Rows of Peas:
1. Peace of mind
2. Peace of heart
3. Peace of soul
Plant Four Rows of Squash:
1. Squash gossip
2. Squash indifference
3. Squash grumbling
4. Squash selfishness
Welcome New Members!
The following companies were approved at
theJanuary 8 & March 12 Board of Directors
Meetings:
Regular Member
QUALITY ESCROW
5550 Baltimore Drive, Suite 100
La Mesa 91942
(619) 916-3375
(619) 916-3377 - Fax
Contact: Kim Wilson
Email: [email protected]
Affiliate Member
1st ENTERPRISE BANK
818 W. Seventh Street, Suite 220
Los Angeles 90017
(213) 430-7052
(213) 430-7091 - Fax
Contact: Alex Martinez
Email: [email protected]
Plant Four Rows of Lettuce:
1. Lettuce be faithful
2. Lettuce be kind
3. Lettuce be patient
4. Lettuce really love one another
No Garden is Without Turnips:
1. Turnip for meetings
2. Turnip for volunteering
3. Turnip to help one another
To Conclude Our Garden We Mush Have Thyme:
1. Thyme for Prayer
2. Thyme for each other
3. Thyme for family
4. Thyme for friends
If you run into our new Members at a meeting,
please be sure to extend a warm welcome!
Method: Water freely with patience and cultivate with
love. There is much fruit in your garden because you reap
what you sow.
- Source Unknown
11
Escrow Institute News
First Quarter 2009
SECURITIES
v.
REAL ESTATE?
The answer is Securities.
Prior to the NAR exemption request and unbeknownst
to most securities and real estate industry insiders, a
small group of TIC sponsors and a broker dealer who
sold TIC investments as securities sought guidance on
the issue once and for all from the SEC by submitting
their own “no action” letter to the SEC.
SEC denies a “no action” request, effectively
halting TICs sold as real estate!!
On February 24, 2006, Darryl Steinhause a partner at
Luce, Forward, Hamilton & Scripps LLP, submitted a
“no action” letter to the SEC on behalf of Argus Realty
Investors, LP, Passco Companies, LLC, and OMNI
Brokerage, Inc. The request submitted two common
business models: (1) a master lease model and (2) a
property management agreement model, being utilized
by TIC sponsors that continued to syndicate TIC offerings as real estate and who were compensating real
estate agents.
By Todd F. Williams, Esq.
For years the debate has raged between the securities
and real estate industries as to where TICs or Tenant
in Common investments could be structured as real
estate transactions; thereby avoiding securities regulation and oversight, and allowing real estate agents
to be compensated for the sale thereof. It appears the
debate may be over according to SEC’s January 14,
2008 response to a “no action” request.
Both securities and real estate industry groups such
as the Tenant in Common Association (TICA) and the
National Association of Realtors (NAR) have sought
guidance from state and federal regulators as to whether
or not TIC offerings could be crafted so as to avoid
securities regulation and allow compensation to real
estate licensees; with little result.
Many sponsors selling TIC offerings as real estate chose
to forego requesting a “no action” letter from the SEC
which would have allowed them to essentially submit
their business model along with a legal opinion to the
SEC requesting a written response that the SEC agree
to take “no action” against them for securities violations, effectively validating their business model and
legal opinion.
On October 11, 2007, the National Association of
Realtors (NAR) took up the cause and submitted an
exemption request to the SEC asking that commissions or referral fees be allowed to licensed real estate
agents or brokers for the sale of TIC securities. Many
sponsors who continued to sell their TIC offerings as
real estate agreed that if the exemption were granted
they would convert their offerings to securities. To
date no response to the NAR exemption request has
been published.
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The request, in essence, was asking the SEC to agree
to take “no action” if the above named companies were
to syndicate offerings utilizing either real estate model
and were to compensate real estate licensees. In other
words because the syndicators that were selling their
TIC offerings as real estate would not ask the SEC for
a “no action” letter directly, several securities sponsors
and a broker/dealer did it for them. The result would
either validate the real estate TIC model and allow all
sponsors to syndicate their offerings accordingly and
compensate real estate licensees or it would settle once
and for all the debate about whether TIC offerings were
securities or real estate.
On January 14, 2009, the Office of Chief Counsel of the
Division of Corporate Finance for the SEC responded
the “no action” request effectively denying it. The SEC
response letter reads as follows:
“Based on the facts presented, the Division
disagrees with your view that the proposed
offer and sale of undivided tenant in common
interests pursuant to the Master Lease Transactions and Property Management Transactions
(each as defined in your letter) do not involve
securities within the meaning of Section 2(a)
(1) of the Securities Act of 1933. As a result, the
Division is unable to assure you that it would
(continued on next page
First Quarter 2009
Escrow Institute News
SECURITIES
(continued from Page 12)
not recommend enforcement action to the
Commission unless such offers and sales are
registered under the Securities Act or exempt
from registration.”
Although the response may be regarded as too little
too late by many in light of sponsors like DBSI, who
syndicated some TIC offerings as real estate and
compensated real estate licensees through a subsidiary
named FOR 1031 (that later changed their name to
Spectrus), declaring bankruptcy. It does make a strong
point that the SEC would view most TIC syndications
as a security regardless of attempts to avoid active
management on the part of the sponsor.
In summary, this “no action” denial should quell any
further debate about whether or not TICs can be sold
as real estate. The status of NAR’s exemption request
is unknown at this time and my opinion is that it probably will not be granted. For those in the TIC industry
who have always syndicated their transactions as a
security, and for those who just wanted an answer to
the question: Security v. Real Estate?, a sincere thank
you is owed to Argus, Passco, OMNI and Luce, Forward for finally settling the question. I, for one, was
tiring of the debate.
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For those interested in reading the “no action” request
as well as the SEC’s response, please visit the SEC’s
website at: http://www.sec.gov/divisions/corpfin/cfnoaction/2009/omni011409.htm
Todd F. Williams, Esq., is an attorney and the President of Todd Williams Consulting, a full service DPP
consulting firm specializing in TIC, as well as other
DPP offerings. For more information on Todd Williams
Consulting, please visit www.tfwconsulting.com
We have a WINNER!
At the March 12th General Membership Meeting in
Ontario, Zoila Linda Chacon of The Escrow Solution
was drawn as the lucky winner of a free 2009 Spring
Conference registration. Congratulations, Linda!
Any one interested in having a chance to win for the
2010 Spring Conference, please contact the EIC Office
at 1-800-337-2769 or attend an EIC meeting Tickets
are $10 each.
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