What Brokers Want to Know About COVID-19
Updated on April 14, 2020
During these challenging times, the utmost priority is to ensure the health and safety of California REALTORS®, their clients, and the general public. We also recognize that we have a duty to the membership to do what we can to assist members in their businesses and help provide shelter for their communities under safe conditions.
On April 10, 2020 – C.A.R. conducted a town hall virtual meeting with over 300 leaders of large brokerage firms from across the state. The following are the questions that were asked by the brokerage community and the answers from the legal and professional services team at C.A.R.
Please reach out to Sara Sutachan, Vice President of Industry Relations at C.A.R. if you have any questions or concerns.
Stay-at-Home and Transactional Questions
There is still a lot of confusion regarding whether the C.A.R. Form Coronavirus Addendum or Amendment (CVA) is a required form in all transactions. Must this form be signed by all parties and made a part of any purchase agreement?
The CVA form is an optional form that the parties may choose to make a part of their transaction. The CVA form was created by C.A.R. because there is not currently a force majeure clause in the RPA or any other C.A.R. purchase agreement. The form is designed to give clarity to a buyer and seller regarding what will happen if the transaction is delayed or cannot close. The form can be used as an addendum if the parties are not yet in contract or as an amendment if they are already in escrow, but either way the form is optional, and no one is required to sign it.
What happens to a seller who contracts COVID-19 or who loses their job due to COVID-19? What happens if the seller can no longer sell because they cannot purchase the home they planned on moving into? How is the seller protected against being sued later?
If the parties have incorporated the CVA form into their agreement, that form can protect either a buyer or a seller who becomes unable to complete the transaction due to COVID-19 related circumstances. If paragraph 4B is checked on the CVA form, the seller may extend the closing, and if they still cannot close by that time, they may cancel the agreement. Without the CVA form in place, however, a seller’s right to cancel due to COVID-19 is not entirely clear. Any seller who wants to cancel without a CVA form or (if applicable) a Seller’s Purchase of Replacement Property Contingency form in the contract should seek legal advice before moving forward with cancelation. If the CVA form is not incorporated into their agreement, a seller in these circumstances might still be able to defend successfully any lawsuit against them based on Civil Code 1511 which excuses parties from their contractual obligations if their performance is prevented or delayed by “an irresistible superhuman cause.”
How are 1031 exchanges being handled since we are on lock down? Will the government be giving extensions to those whose timelines are affected by COVID-19?
Good news - the IRS and the Franchise tax Board have issued guidance to grant deadline relief for 1031 like-kind exchanges that are already underway. CAR advocated for this extension of 1031 like-kind exchanges due to the harmful economic effects of COVID-19. IRS and FTB guidance now states that if an investor has taken the first step of a like-kind exchange by selling the old property, and either the 45-day or the 180-day deadline falls between April 1 and July 15, the deadline has been extended to July 15.
Is it possible that the 3% liquidated damages clause agreed to in the contract between the buyer and seller will not be valid if a seller suffers much greater damages due to COVID-19 issues? Is it a possibility that a seller could pursue specific performance as a way around liquidated damages?
It is always possible, although extremely rare and unlikely, that a judge or arbitrator may disregard a liquidated damages clause in a contract and permit a seller to prove a greater loss. As with almost everything when it comes to how COVID-19 will affect future legal disputes, it is hard to know for certain how a judge or arbitrator may take these circumstances into account.
It is also a possibility that even with a liquidated damages clause in the contract the seller could still pursue specific performance (a type of legal action to compel a party to a contract to complete his or her performance under the contract). However, an action to compel a buyer to complete the purchase is generally much more complex than an action to recover liquidated damages, may be more difficult to win, and may be more costly than seeking monetary damages.
As always, any seller with specific questions relating to their legal options should consult an attorney. More information about liquidated damages can be found in the Legal Q&A Liquidated Damages and Deposit Disputes.
The C.A.R. form Coronavirus Property Entry Advisory and Declaration (PEAD) says the property “should” be disinfected after each showing, but how does this work for vacant homes? In many markets those are all we can show. What if the sellers cannot clean after each showing? Should this be disclosed to buyers/buyer’s agents?
The PEAD form, in accordance with C.A.R.’s Guidelines for Real Estate Best Practices, advises that the property should be cleaned and disinfected after each showing. This is to protect the health and safety of all parties who enter the property and the community at large. If for some reason this cannot be accomplished, the fact that the property is not being cleaned and disinfected between showings should be disclosed to all buyers and their agents who inquire about seeing the property, so that they may make an informed decision and take all necessary steps to protect themselves and others.
I am recommending key safes with code capability in order to better control those who enter the property, and to ensure that only those who have signed the PEAD are able to enter. Do you see that as a viable suggestion?
It is a very good idea to have some way of ensuring that only buyers and agents who have signed the PEAD form are able to access the property, whether by using a lockbox with a code or scheduling appointments to provide access.
We've been told that the PEAD should be signed for vacant land listings as well as improved properties. I'm having a difficult time trying to figure out how my agents can realistically enforce this. Buyers many times go to view vacant land on their own.
For vacant land listings it may be more difficult to restrict access only to prospective buyers and their agents who have signed the PEAD form. You should still attempt to have the form signed and include it as a requirement in any showing instructions.
Is the order complication chart detailing the various city and county Stay-at-Home orders a living document that will continue to be updated, or will the link need to be changed each time edits are made?
Yes, the spreadsheet detailing the various city and county Stay-at-Home orders will be continuously updated as orders are added or changed, with a revision date at the top. It will be kept up to date at its current location, so you can keep it bookmarked for reference. The chart can be found here.
How can we uphold our fiduciary relationship with our clients when they have a need to sell or buy right now and we're being told we can't show occupied property?
All people, not just REALTORS®, are required to follow the Stay-at-Home guidelines for California as well as the city or county where they are located. It is more important than ever to communicate with your clients about what is possible when it comes to buying and selling property during this difficult time. For listing agents, you can use the new C.A.R. form Listing Agreement Coronavirus Addendum or Amendment (RLA-CAA) to specifically discuss and agree with your seller what pre-sale and post-acceptance activity will occur as part of your listing and any subsequent transaction. It is not your fiduciary duty to violate government orders like these. It’s also not your fiduciary duty to risk your own health and safety by doing an activity you are justifiable uncomfortable doing.
For places where in-person showings are not currently allowed, how does that affect what actions can be taken if the property is already in escrow?
Some city and county orders prohibit in-person showings of occupied property, or even in-person showings altogether. Many of these orders, however, seem to limit these restrictions to “showings,” or having prospective buyers visit the property for marketing purposes. Other services necessary to assist in the transfer and recording of property are often allowed, which could include inspections, appraisals, and other instances of access to the property. Please consult the specific language contained in your city or county order.
Is CAR doing anything to persuade cities like Los Angeles to allow in-person showing of properties for sale and for lease?
The city of los Angeles does now allow in person showings of vacant properties. Some jurisdictions still do not. These are local issues and local REALTOR organizations should be the ones leading the effort to modify local rules. CAR can provide assistance.
Can you please address the clear cooperation policy? Is there any indication that it will be postponed?
NAR continues to maintain its May 1, 2020 implementation deadline for the Clear Cooperation policy. It did state though that “MLSs who have challenges implementing the CCP by the May 1 deadline as a result of the impacts related to COVID-19 are encouraged to contact NAR’s MLS team for guidance and assistance.” (NAR Member Experience staff can be reached at 312-329-8399)
REALTOR® Relief Questions
The CA EDD web page doesn't seem to be up to speed on COVID-19 circumstances and options. Are you in contact with them at all so we can update our agents with possible timeframes? Should we continue to have our agents wait to apply for loans until the government is ready?
Most REALTORS® who have only independent contractor income should not file at this time, but should wait for additional guidance before submitting your claim for PUA benefits. The latest information released from the California Employment Development Department on April 14th in an open letter to Californians from Julie A. Su the California Labor Secretary states that – “We need two weeks to create this new technology — set up the system, test it and be able to turn payments around. To be clear, these payments will not take the 3 weeks from application to payment that UI has taken unless the claims do not include all of the information needed; we are working to make it much faster. Once I know the exact date that this one-stop shop is ready, I will let you know." As soon as we get a date from the EDD, we will update our members. For the full open letter please see: https://www.labor.ca.gov/2020/04/14/open-letter-to-californians-regarding-unemployment-insurance-ui-payments-and-pandemic-unemployment-assistance-timeline
Does anybody at CAR have any insight on how agents - who qualify for PPP loans - can actually apply for them in light of the restrictive bank practices we’re seeing? After much research, every single qualified lender I’ve found will only allow applications from current business account holders. In fact, they will only accept applications from holders of pre-existing business accounts (established prior to either 2/15 or 3/27, depending on the lender) so we can’t even open a business account at this point in order to have access to a PPP application. Is there any sign that this will be changing?
We have heard about these restrictive practices from numerous sources. C.A.R. is pursuing multiple avenues to persuade lenders to work with REALTORS® with whom they don’t already have a business relationship, but there is little we can do directly. Congress and the SBA is also working to broaden access to these loans. One promising avenue: C.A.R. is working to establish relationships with online lenders and brokers to implement processes to benefit REALTORS® who are not getting proper service from other banks. Stay tuned to C.A.R. communications for more developments in the next few days.
Can we, as independent contractors who receive 1099s and do not pay unemployment insurance, still get unemployment benefits?
The CARES Act also includes a new Pandemic Unemployment Assistance (PUA) program expanding unemployment benefits eligibility to business owners, self-employed workers and independent contractors, including most REALTORS®. This means if you’re unable to work as a direct result of the pandemic and you aren’t eligible for ordinary unemployment insurance benefits, you may be entitled to PUA benefits.
There are broad categories of eligibility such that most brokers whose work is adversely impacted by COVID-19 may be eligible for some benefits. However, you still must meet the criteria. Presently, limited information is available. However, C.A.R. is working diligently to get you as much information as we can. We will provide additional details as soon as they become available. See https://www.carcovidupdates.org/relief-faq-for-brokers for more detailed information about the criteria.
Can we get the enhanced $600/week unemployment stimulus? Can we get the $1200 stimulus check? What are the criteria for each?
The CARES Act provides a temporary emergency increase of $600 per week for up to 4 months for those that are eligible for PUA. See the above question for more details about the PUA criteria. The bill also provides tax rebate payments of $1,200 per adult and $500 per child to taxpayers whose adjusted gross income was $75,000 or less for individuals or double that amount for joint return filers. For income levels above those thresholds, the payments would be phased out. Individual taxpayers with annual gross incomes above $99,000 and joint filers with annual gross incomes above $198,000 are not expected to receive any payments.
Which is better when it comes to applying for relief with independent contractors who are also incorporated - unemployment or PPP loans?
The better choice will depend on many factors, including your income, business legal structure, and personal finances. In the end, the decision is best made in consultation with your accountant. If you have specific questions about the programs, you can contact the COVID Relief Hotline at 213-351-8450.
Property Management and Landlord/Tenant Questions
What is happening with evictions based on factors other than nonpayment of rent, or nonpayment that is unrelated to COVID-19 circumstances?
There are currently many different rules and restrictions in place relating to evictions, including the Federal CARES Act, The Governor’s Order from March 27th, the Judicial Council Emergency Order halting eviction lawsuits statewide, and various city and county eviction moratoria. A complete rundown of all of these rules, as well as other legal issues facing property managers at this time can be found in the Legal Q&A COVID-19 Landlord Issues.
Do the new landlord/tenant rules apply to commercial leases?
Some do and some don’t. The Governor’s order from March 27th only applies to residential tenancies. Some local city/county orders are residential only but some protect commercial tenants as well. The Judicial Council emergency order halting all evictions applies to all unlawful detainer actions, including ones on commercial properties.
Are landlords allowed to charge late fees for the late payments of rent? Does it depend on whether the tenant can document being affected but COVID-19 circumstances?
Whether or not the landlord is allowed to charge late fees for rent that is paid late during this time depends on a number of factors. Some city/county ordinances include a prohibition on the collection of late fees but not all of them do. Keep in mind, however, that a local ordinance could be considered to have the effect of legally altering the due date of the rent, and if the rent is not technically due, then it likely would not be considered “late” for the purpose of charging a late fee. Additionally, the eviction moratorium in the Federal CARES Act does specifically prohibit the charging or collection of late fees for properties subject to the Act (more information can be found here).
What happens if a tenant previously approached the landlord about an inability to pay and the landlord is refusing to consider forbearance and a repayment plan? What is the responsibility of the REALTOR® property manager?
The landlord essentially has no choice but to follow the applicable orders relating to forbearance and repayment plans. As mentioned above, even if the landlord refused to follow these orders, there is a statewide halt on eviction actions. A REALTOR® property manager should make sure their landlord clients are aware of the current rules regarding evictions and strongly encourage their landlord clients to consult a local landlord/tenant attorney so that they can get their own legal advice.
Can we consider another option to get money flowing again? For example, what about government vouchers for tenants to use for rent (like Section 8) instead of ceasing rent payments altogether?
A subsidy or voucher system for tenants to pay the rent has been raised. One of the ironies of the current situation is those landlords with Section 8 tenants are generally receiving their rent payments, as the government continues to pay their usually more significant portion and tenants often don’t want to risk their Section 8 tenant and are paying their smaller portion.
A federal bill was introduced to provide short term rental assistance to tenants but has not moved forward. It was not included as part of the stimulus package and even if it were to get out of the House, it would be unlikely to pass the Senate.
There historically has been enormous political resistance to any expansion of federal rent subsidies. There are currently not enough Section 8 vouchers available to meet demand. In 2017, for example, the city of Los Angeles opened its Section 8 lottery for the first time in 13 years. That resistance to the expansion of rent subsidies has not changed despite the crisis.
On the state level, while there may be ideological sympathy to such a voucher system, fiscal concerns have generally stopped such a program as the state mandates a balanced budget and even without such subsidies it is likely state revenue will go down significantly due to the economic downturn resulting from the Covid-19 pandemic.
So for now, such a response is not likely to get political traction, instead you get solutions on both levels of government that cost the government little but can cause significant economic problems for smaller landlords.
For Brokers - For Broker/Owners | Coronavirus.
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