Dear CAR Member,
Last fall, I informed you that the Internal Revenue Service (IRS) and the state Franchise Tax Board issued letters stating that California families who have sold their home in a short sale are not subject to either state or federal income tax on the forgiven debt. Recently, the IRS, claiming that its original letter had been “too broad,” issued another letter to clarify that under some circumstances (e.g., cash out equity lines), the debt forgiven in a short sale is still taxable. If you’ve worked with clients who sold their home in a short sale, urge them to consult a tax professional to determine what, if any, tax they owe.
In a short sale, homeowners sell their homes for less than what is owed. If a lender agrees to the sale, the lender forgives a certain amount of the loan principal. Before Sen. Barbara Boxer and Board of Equalization Member George Runner requested clarification on behalf of C.A.R., it was not entirely clear that homeowners wouldn’t lose their homes and then be faced with a large tax bill as well. Homeowners with questions about taxes and short sales should contact their tax professionals. C.A.R. is working with Sen. Boxer to seek clarification of protection for property owners who completed a short sale in the first part of this year, relying in good faith on the original IRS letter.
At the state level, C.A.R. has been opposing SB 1439 (Leno), a bill that would allow San Francisco to mandate a 5-year “hold period” before the owner of a rental unit can convert it to another use or take it off the rental market. C.A.R. opposes this measure because it is a direct assault on the rights of private property owners. This week, despite a well-organized effort in support of the bill, C.A.R. successfully defeated SB 1439 in an Assembly Committee. The author may have other opportunities to promote this concept, so you may still see a Red Alert on his proposal. While this may not mean the end of the war, it was a battle well-won.
Speaking of legislation, I wanted to take a moment to acknowledge the efforts of Assembly Member Al Muratsuchi, who is authoring C.A.R.’s sponsored bill concerning auction companies. AB 2039 will ensure that auction companies are liable for their own errors and will also prohibit the use of misleading “shill bids,” which cannot actually be accepted, in order to artificially drive up prices in real estate auctions. AB 2039 is facing heavy opposition from online real estate auction companies, and we want to thank Assembly Member Muratsuchi for standing firm in support of home buyers and REALTORS®.
With the spring home buying season turning to summer, I’m hearing about a resurgence in “off-MLS” listings – or listings that agents obtain but do not place on the MLS. They are referred to, sometimes interchangeably, as “off-MLS,” “pocket listings,” or “coming soon” listings. While off-MLS or “pocket listings” are not per se illegal, the practice raises many legal and ethical red flags. REALTORS® must act in their clients’ best interest and also, under the Code of Ethics, are obligated to cooperate with other REALTORS® when it is in the best interest of the client. REALTORS® should reflect on whether they are satisfying their duties. Does the client really understand that wide exposure through the MLS will generate more offers and likely increase the price for the seller? When the client’s consent is obtained to keep exposure to a small select group and off the MLS, has the impact of this limited market exposure and the lessened likelihood of a higher price been fully explained to the seller? And under the ethical duty to cooperate, how does putting it on a public site square with rationale given to the seller? Aside from ethical issues, does a marketing plan that did not provide the best opportunity to attract offers at the highest price but simply maximizes the likelihood the listing agent will get to sell his or her own listing really satisfy the fiduciary duty to the seller? Was the limited market exposure fully explained or was a pocket listing/limited marketing hard-sold as the best alternative?
Last spring, C.A.R. provided many resources to educate REALTORS® and consumers about the pros and cons of “off-MLS” listings. C.A.R. made available legal and informational material aimed at both REALTORS® and consumers. And C.A.R.’s Standard Listing Agreement and C.A.R. Model MLS Rules were revised to cast a brighter light on this practice.
The following resources can help you and your clients understand the advantages and disadvantages of pocket listings:
- Pocket Listings Legal Q&A: C.A.R. legal article addressing the legal and practical issues involving pocket listings including breach of fiduciary duty, ethics violations, and fair housing and antitrust issues.
- C.A.R. produced a brief video, which educates buyers and sellers about the pros and cons of pocket listings that REALTORS® can place on their websites or other marketing vehicles.
- “The Pressing Issue of Pocket Listings,” webinar presentation by C.A.R. Senior Counsel Elizabeth Miller-Bougdanos and MLS Listings Chair and C.A.R. Past-President Robert Bailey, who discussed how this growing practice is impacting the real estate industry.
- C.A.R.’s Residential Listing Agreement (Form RLA), as well as C.A.R.’s other standard form listing agreements, revised last summer to include a prominent disclosure regarding the benefits of marketing properties through the Multiple Listing Service (MLS), including a warning that excluding a property from the MLS reduces exposure to relevant audiences and may result in a lower number of offers received and lower sales price.
- “Demand That Offer Be Presented to Seller” (DPO) letter in the C.A.R. Sample Letter Library through zipForm® 6: A buyer’s agent may use this letter to encourage a listing agent to present the buyer’s offer to the seller.
As always, you may consult one-on-one with a C.A.R. attorney through our Member Legal Hotline at (213) 739-8282, Mondays to Fridays, from 9 a.m. to 6 p.m., and Saturdays (transactional questions only) from 10 a.m. to 2 p.m.
C.A.R. is continuing to meet with MLS executives throughout the state to share information and develop strategies to address this issue.
It may only be June now, but it’s never too early to start planning for CALIFORNIA REALTOR® EXPO 2014 at the Anaheim Convention Center Oct. 7-9. And to help you plan and save money, C.A.R. is offering an early-bird discount if you register by June 30. On Tuesday, Oct. 7, Terri Sjodin, one of America’s most sought-after female speakers and best-selling author featured on The Today Show, Bloomberg, CNN, and CNBC, will show you how to add a persuasive edge to your presentations with a practical approach and a fresh, real-world style. You’ll walk away with street-worthy ideas, methods, and tips you can use immediately to get results. Whether your real estate career is just beginning or you’re looking to further enhance your established practice, One Cool EXPO offers a wide variety of targeted full-day events, CE courses, and à la carte options to help you customize your experience. Check out all our paid events and take full advantage of our discount pricing before early-bird rates expire June 30. Register here for One Cool EXPO!
Finally, if you’re a Southern California-area REALTOR®, you’ll want to send your clients to a free Homeownership Fair in Long Beach next Saturday, June 28. Whether you’re working with first-time home buyers, sellers, or those looking to re-enter the market, the Homeownership Fair will provide resources to help make the process easier. The fair will include sessions on wealth development, the importance of using a REALTOR®, offer acceptance, down payment assistance programs, and more. Numerous exhibitors will also be on hand to provide information, answer any questions, and provide free giveaways. Admission is free for all attendees, but they should register here in advance.
Have a great weekend!
Sincerely,
Kevin Brown
2014 President
CALIFORNIA ASSOCIATION OF REALTORS®