CRES Risk Management Webinar: Home Hardening, Wire Fraud in New Ways, Eviction Moratorium, and Contingencies Update

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The California real estate market has experienced extremely low inventory, but things have started to normalize in recent weeks. In this webinar, attorney Mark Carlson from the Carlson Law Group, and Dave Miller, Regional Vice President of Fidelity National Home Warranty, provide an update on some of the current issues in our real estate market.

This informative webinar covers:

  • Eviction moratoriums and why real estate professionals should have their clients talk to an attorney
  • The dangers of non-contingent offers
  • Seller Purchase of Replacement Property (SPRP) forms and why they must be completed carefully to avoid a lawsuit
  • Wire fraud latest scams
  • The new Home Hardening Disclosure Laws, and what they mean for sellers, buyers, and real estate professionals

If you want to keep on top of these important issues and find out more about how you can manage your risk as a real estate professional, watch the full webinar here (or see the transcript below):

 

Transcript from CRES Risk Management Webinar: Home Hardening, Wire Fraud in New Ways, Eviction Moratorium, and Contingencies Update

Laura Prouse:

Thank you for joining us today for an update on topics and issues we’re seeing in this current real estate market. I’m Laura Prouse with CRES, an Affinity Division of AJ Gallagher. Today, we welcome attorney Mark Carlson from the Carlson law group. Mark has been defending real estate professionals since 1993 and has worked with CRES for over 20 years as a founding member of our legal panel. Along with Mark, we have Dave Miller, Regional Vice President of Fidelity National Home Warranty. Dave manages the CRES advantage home warranty plan. As a CRES E&O client, when you purchase a Qualified Home Warranty from Fidelity National, you reduce your out-of-pocket claims costs up to $5,000. Dave Miller:

It’s been a few months since we’ve talked about some of the major issues in the California real estate market. And since those few months have passed, it’s been like the wild west. The inventory has been extremely low. There are 10 to 15 offers on every property, and contingencies seem to be a thing of the past. Luckily over the last three or four weeks, things have started to normalize.

Eviction Moratorium Update

Let’s talk about property management for a moment, and eviction moratorium (now extended to October 3, 2021). Mark, do you see any other extensions coming and if so, what are we going to continue to see?

Mark Carlson:

When the moratoriums will ultimately lift, of course is unknowable. It’s a highly politicized issue. And I’m sure landlords that aren’t getting paid rent, and who were unable to take advantage of some of these relief programs administered by the state from the federal monies, just want to get back to normal.

Whether you’re a property manager or whether you’re a listing agent looking to sell a property that’s tenant occupied:

  • Have property owners get legal advice from their attorneys, and find out exactly what’s going on in the city and the county where the property is located. That’s important because there are a lot of overlaying restrictions as to moratoriums.A statewide moratorium that we’ve talked about is just one thing that could potentially impact an owner’s ability to evict a tenant.

Dave Miller:

 If these continue to extend, do you see them continuing into next year?

Mark Carlson:

I think the last extension to October 3 also contained a clause that said local ordinances can extend beyond that. 

So the question really becomes: what’s going to happen in each state?  It’s such a highly politicized issue. You see the Supreme Court statement that the federal eviction moratorium was only allowed to go through when it expired. 

And then there was a statement that if it were to extend beyond October 3, it couldn’t be extended by the president, it would have to be done by Congress. But then you see members of Congress saying, well, you should just do it anyway. 

And so, you never know what a local municipality is going to do in the face of state law. So it really is is one area where agents, whether it be property managers or listing agents, just need to punt and have their clients go talk to an attorney and get advice..

Dave Miller:

In your opinion, is this whole eviction moratorium directly tied into COVID —like if the cases are getting better across the US, is this going to possibly go away? Mark Carlson:

I don’t think anybody knows that. All of the California ones have all been extended within a day or within 24-48 hours of when its predecessor was going to expire. And so they just come out. There’s just no way of knowing.

Non-Contingent Offers vs Seller’s Contingencies

Let’s talk about non-contingent offers.  You’ve mentioned in the past the dangers of not having home inspections and maybe pest control or home warranty in the purchase and sale agreement.

Mark Carlson:

We’re starting to see as we run the CRES risk management Hotline:

  • Houses being on the market a little bit longer
  • Offers containing contingencies, which I think is good because it’s dangerous to try to close without them.

 So the market may be cooling off.  Industry professionals always love a hot market, because everybody makes more money. 

But I think the market being as hot as it was and pressuring agents to recommend or go along with non-contingent offers was really just an unnecessary risk. So from that respect, I’m glad that it’s seems to be cooling off. 

Dave Miller:

I think you mentioned to us a couple of weeks ago, you’re seeing an uptick in contingencies for sellers, and there’s a form to use  —the sellers purchase of replacement property form (SPRP). What exactly does this form do? And how does it help the sellers?

Mark Carlson:

When sellers in a tight market like this want to sell their property,they want to have a property to move to (unless they’re just cashing out on the market, which some sellers are doing). 

The seller purchase of replacement property form was revised in 2017, really to make it more user-friendly for real estate professionals. The prior version of the form didn’t clearly state when the inspection periods and contingency periods on the “down lake transaction” would occur. Is it upon acceptance of the buyer’s offer? Or is it upon removal of the sellers’ contingency once they find replacement property?

So the form is a little bit more user-friendly, but it really should be filled out carefully. You don’t want to have a circumstance where the sellers can’t find a property, but then are locked in to selling their home. Nearly 100% of the time, that’s when sellers sue their listing agents saying, “what’d you get me into.”

Wire Fraud isn’t Going Away

Dave Miller:

I was just watching the news this morning and a company was taken for $610 million due to wire fraud. This is just not going away. And of course it’s heavy in real estate too, but what continual issues do you see with wire fraud? And what can real estate professionals, buyers, and sellers do to protect themselves?

Mark Carlson:

The bad guys are getting more sophisticated all the time. And just when people figure out solutions to stop it from happening, the bad guys come up with new methods in which to dupe people — typically by giving or sending money to false bank account addresses

 It’s really just diligence:

  1. Confirm wire instructions with your buyers.
  2. Advise them NOT TO ACT on any change in wire instructions without confirming it with you by phone and email.
  3. Have your buyers call escrow before and after they send a wire, so that  escrow knows it’s coming And that they confirm the wire  got there.
  4. Advise your clients never to accept new instructions directly from someone saying they’re from “escrow.”  

This  just happened about four months ago to a client I was involved with.  Somebody had called the buyer and said,  “I’m so-and-so from ABC escrow. I need you to send… I need to have you fill out this information, so that we can adjust the wire.”

 So people are now impersonating the professionals that are involved in the transaction. And it isn’t just a matter of emails like it was before. You have to be really diligent, double-check whenever it comes to a wire. Call your buyers before they send a wire to confirm the details (and confirm the details by text message and email), Have the buyers call escrow before the wire to advise escrow it’s coming, and then after the wire’s been sent to confirm they received it. . 

  • If your buyers send a wire, and then they call the correct escrow number that you provided, and escrow  doesn’t know anything about it, they have  24 hours in which to stop the wire. But if your buyers don’t follow up to confirm receipt of the wire and 24 hours  passes, it’s nearly impossible to get that money back.

This could happen with  a seller’s proceeds. It can be a buyer’s deposit. It can be a refunded buyer’s deposit. If there’s a canceled transaction i where there potentially could be a wire of size, that’s where the bad guys are trying to pounce.

Dave Miller:

We always see at the bottom of every escrow officer’s email under their email template a disclosure about wire fraud, and there’s a statement like, “we will never ask you for X, Y, and Z.” Mark Carlson:

Everything together is helpful. But it’s when you look carefully at emails that start the wire fraud process, there’s always something in there that would allow you to identify it as a fraudulent email.

It could be Mike Jones and there’s two “i’s” in Mike versus one, and that’s how the bad guys do it. They create fake URLs. And then they make subtle changes to the address, Mike L. Jones, where, whereas before it was just Mike Jones. And then the research shows that people spend something like less than one tenth of a second looking at the from line. So you’re just sort of looking at the “RE:” line until your mind processes, okay, I know who that is. And then you go on to something else. You don’t look, people don’t normally read the address lines critically.

Home Hardening Bill

Dave Miller:

I think many are overthinking this subject — it’s the HHDA, the Home Hardening Bill (AB 38)  passed in January. And then in July, we had a recent update with defensible space. What’s your take on this bill? And specifically the form (the HHDA) and what can parties do from a risk management standpoint to be in compliance?

Mark Carlson:

It’s an effort by the state to try to get people to create defensible spaces around their property — and knowing what that defensible space means is important.. 

So defensible spaces are defined in Public Resource Code 4291 as two zones:

  1. Within 30 feet of the house. 
  2. Within a hundred feet of the house

The idea is just to properly maintain vegetation — to remove any extra fuel or unnecessary fuel around the house that could exacerbate or make that house more vulnerable to fire. 

So there isn’t a black and white standard, it just is a maintenance program or effort in order to minimize the risk. And in fact, within the Public Resource Code 4291, it specifically says that single specimen trees or other vegetation that’s well pruned or maintained are exempt from the requirements.

Mark Carlson:

Sellers may be thinking, “if I don’t properly figure out whether my house is in a high fire zone, the buyer might be left having to spend thousands of dollars in weed abatement, or cutting big trees down.” Well, that’s probably not going to be the case.

I’ve been litigating cases on behalf of real estate brokers since ’93.  I’ve had exactly zero cases where a Fire Marshall came by and ordered a bunch of things to be done with the property after close of escrow, and the buyers were upset that they had to comply. 

 In most circumstances, you get a weed abatement note and the fire department just sort of comes by and makes sure. And if you don’t take care of it, they pester you again. It’s typically not a circumstance where the fire department or local Fire Marshall will require you to re-landscape your property to be in compliance.

But there is now a required form . The form is created by CARr to contain the disclosures and warnings mandated within the statute. 

If a property is built before 2010, and is in a high or very high fire zone, then the disclosures need to be given to the buyer. It also is only required when there’s a transfer disclosure statement (TDS) required. So if you have a house that’s being sold in the administration of a trust, or if it’s an REO property or one of the other exceptions to when a TDS is required, then you don’t have to provide the home hardening form.

And so then the question becomes: “how do I know if it’s in a high or very high fire zone?”

 It also applies outside of those zones, for example, if you’re living in an area where you will butt up against rolling hills and vegetation. So if youoverlook a canyon, whether you’re in a high or very high fire zone, you’re going to have to make the disclosures assuming the house wasbuilt before 2010.

 Take a look at the NHD report. It’s typically listed there, although that’s unfortunately not a one-stop shop, because sometimes it’ll be missed in the one-page summary  at the front.

And sometimes it isn’t in the summary, but it’s buried back within the body of the report. So it’s important to look through the entirety of the NHD report to see whether or not it’s in a high or very high fire zone. It can also be that a property is not listed in a high or very high fire zone, but it’s in a wildfire overlay zone that, then the statute doesn’t apply to. What if I’m in a fire zone, but it’s worded something differently than high or very high?

tThe statute allows a seller to make the required disclosures, even if it’s voluntary. So maybe I don’t know, and I’m having a tough time figuring it out, or the report I got back is confusing. There’s nothing wrong with the seller making the disclosures in any event.

And all the disclosures are… “Are there certain characteristics of the house (that are listed on the form) that make the house more vulnerable to fires?”

So you could have a seller take the approach, “I don’t know, one way or the other, but I’m going to fill it out anyway. So then I know I’m covered irrespective.”

The bill applies to houses built before 2010, so if it’s built after 2010, it doesn’t apply.

Dave Miller:

Fidelity National Home Warranty has disclosure source NHD, and we’re all over this. And our reports obviously have the home hardening in there in the disclosures about the fire zone, not only on the summary sheets in the beginning, but through the report extensively. So real estate professionals can check that out. Mark Carlson:

There’s another part to it that is, I think, causing a lot of people consternation,  because it talks about written proof that the property is in compliance with defensible space. 

But there are  no strict requirements, and most fire jurisdictions don’t have a procedure to do an inspection for whether a property is in compliance with defensible space. 

But, assuming for whatever reason that the seller within the six-month period prior to the offer had a report or a note from a government agency saying that the home wasn’t compliant, then the seller has to give the buyer a copy of that report. There may be local ordinances that require documentation of compliance. I just heard that   Marin County and another county up in Northern California in the Northern Sierra Nevada area have compliance ordinances.

If there’s a local requirement, then the buyers must agree that within a year, they’ll obtain the written documentation that they’re in compliance. 

If the ordinance requires that the seller obtain the written compliance or documentation of compliance, then the seller has to provide that five days prior to close of escrow. 

 It’s hard to give a standard rule, because it just depends on what the local ordinance is, and that could change as things go forward. We’re just at the very beginning of this. So you could have local governmental entities creating ordinances that don’t exist now.

Dave Miller:

So we have a new bill, we have a new disclosure and we have a new CAR form. I mean, we’ve had hundreds of those over the period of years, but why is everybody overthinking this one? Is it because it’s just something new?

Mark Carlson:

Well, I think because it’s a mandatory form and we haven’t had a mandatory form  in a very long time. But really, I think that the risk or the exposure if this is done improperly is fairly remote. And it’s meant really just to educate people to look at their house and see if there are ways that they can prune and maintain the vegetation in such a way to make it less vulnerable to fire.

For there to be a claim arising out of this form, you would have to have a fire after close of escrow.  And then somebody would have to show that, but for the mistakes on the form, that house wouldn’t have been damaged in the manner that it was in that fire. 

So it’s a remote circumstance. The other potential risk is if a buyer buys a property, and then in order to obtain written documentation of compliance, they have to spend a lot of money to do that. But it’s hard to know because there aren’t very many local ordinances currently.

Dave Miller:

If the NHD report fails and the disclosure fails, who’s ultimately responsible? Is it the sellers or the NHD report (or the NHD company)?

Mark Carlson:

tThat’s a good question. You’re talking about a statute that’s not even a year old yet. But if a seller could say,  “I’m going to voluntarily make the disclosures. I have an NHD report here that says that I’m not in a high fire zone, but I would like the buyer to preserve this home because it’s been in my family for generations, and so I’m going to make the disclosures anyway.” That’s perfectly fine under the statute.

Laura Prouse:

Great information as always. Mark, Dave, thank you so much, really appreciate your time.

This blog/website is made available by CRES Insurance Services for educational purposes to give you general information and understanding of legal risks and insurance options, not to provide specific legal advice. This blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Claims examples are for illustrative purposes only. Read your policy for a complete description of what is covered and excluded.

Originally Published September 1, 2021

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