FAQs: Transactional/Legal

Updated on April 3, 2020

UPDATE: On Saturday, March 28, the U.S. Department of Homeland Security Cybersecurity and Infrastructure Security Agency (CISA) updated its list of essential services during the coronavirus (COVID-19) crisis and expressly included residential real estate. Since Governor Newsom’s March 4, 2020 order incorporates this list, the order now includes residential and commercial real estate, including settlement services, as essential services in California. However, if a city or county has an order with a more restrictive standard regarding what qualifies as an essential service, or more restrictions on activities, those guidelines will still govern the activities of a licensee. 

Notwithstanding this new development, all real estate licensees must take into account the health and safety of their clients and fellow licensees, and follow the existing protocols for protecting against the spread of COVID-19. If such health safeguards and protocols are not followed, the rule for the state could easily change to stop or restrict all real estate activity.

To that end, in conformity with current health guidelines, real estate licensees should follow all CDC and local health mandates.

1. No open houses should be held.
2. Showings should be done virtually, if at all possible.

For more information read below, and see C.A.R.'s Guidelines for Best Practices.

What unique issues does coronavirus present to the real estate industry?

When an infectious disease, such as coronavirus, has been associated with a specific population or nationality, fear and anxiety may lead to social stigma and potential discrimination. REALTORS® must be mindful of their obligations under the Fair Housing Act and California’s own fair housing laws and be sure not to discriminate against any particular segment of the population. While the coronavirus outbreak began in Wuhan, China, that does not provide a basis for treating Chinese persons or persons of Asian descent differently.

 

Can I hold open houses right now?

No. Even though certain real estate activities may be allowed, no open houses are to be held at this time to comply with local, state, and federal guidelines.

 

What exactly does the Residential Listing Agreement (RLA) authorize and permit in terms of marketing the property?

Paragraph 7 of the Residential Listing Agreement establishes the basic duties of the broker and seller. Paragraph 7A authorizes the broker to market the property by any method selected by broker, unless seller gives broker written instructions to the contrary. In paragraph 7B, the seller agrees to make the property available for showings, but that obligation is limited by the seller’s duty to act in good faith to accomplish the sale of the property. Given the current environment surrounding COVID-19, a seller’s legitimate concerns about strangers entering the property would most likely be a good faith objection to that marketing practice.

 

In order to address these specific concerns, C.A.R. has created the new form RLA-CAA, the Listing Agreement Coronavirus Addendum or Amendment. This form can be added to new and existing Residential Listing Agreements (or any listing agreement) to clarify the rights, responsibilities, and obligations of both the seller and listing broker. More information about this form can be found here.

Can an agent inform their older clients of the governor’s recommendation to self-quarantine for those aged 65 or older?

Yes. Governor Newsom has suggested Californians take extensive precautions to avoid the spread of the coronavirus including the self-isolation of those aged 65 or over, as well as those with pre-existing conditions. The real estate licensee may bring this issue up with seller clients. As real estate licensees have a relationship with the community at large, informing sellers who are 65 or over of the self-quarantine guideline provides a service not only to the client but the public.

Can a broker refuse to show a property?

Yes. Even though the California order now includes real estate activities as essential, the health and safety of brokers, agents, and their clients should remain everyone’s highest priority. Any activity that can be done virtually should be handled in that matter. Furthermore, in certain cities and counties, all real estate activities remain prohibited, or in-person activities may be limited.

 

May I ask clients or others I interact with in my real estate business if they have any respiratory illness?  

Yes, this is an appropriate question to ask of all clients and others you interact with at this time. Do remember that if you are asking this question it should be asked of all individuals and not just people of a particular ethnicity.

 

In fact, to comply with C.A.R.’s own Guidelines for Best Practices, C.A.R. has created a new Form PEAD, the Coronavirus Property Entry Advisory and Declaration. This form requires any person who will be entering a property to represent that to the best of their knowledge they are not currently afflicted with COVID-19 or experiencing any symptoms of respiratory illness. More information about this form can be found here.

I typically drive my clients to showings. May I continue to do so?

No. In-person showings should be very limited in general and remain entirely prohibited in certain cities and counties. If a client does want or need to see a property in person, you should not drive them to the property and should instead meet them there.  See C.A.R.’s Best Practice Guidelines for more details.

 

What are my client’s disclosure obligations if someone in the home tested positive for coronavirus?

Sellers must disclose to all persons who enter the property if the seller is currently ill with a cold, flu or COVID-19 itself, or has a fever, persistent cough, shortness of breath or other COVID-19 symptoms, or has been in contact with a person with COVID-19.  See C.A.R.’s Best Practice Guidelines for more details.

 

What do I tell a client whose stock portfolio lost substantial value and who wants to back out of a transaction because he no longer has the funds? What are the buyer’s obligations? What are the seller’s obligations?

The loss of value in a stock portfolio does not, in and of itself, provide grounds for a buyer or seller to cancel a contract unless the contract is contingent upon the value being maintained. The C.A.R. Residential Purchase Agreement does not contain such a preprinted contingency. If a buyer was relying on the stock portfolio to provide the needed down payment or closing costs, the opposite is true. The last sentence in paragraph 3J(2) specifically states that the buyer’s contractual obligation regarding deposit, balance of down payment and closing costs are not contingencies.  

Some people have heard of something called a “force majeure” clause. These clauses can limit a contractual obligation, or otherwise, based on “Acts of God.” However, California Civil Code, section 1511, paragraph 2 provides that performance of an obligation is excused when it is prevented or delayed by an irresistible, superhuman cause unless the parties have expressly agreed to the contrary.   The C.A.R. contract does not have such a clause. “Force majeure” or “vis major” is not necessarily limited to the equivalent of an act of God, but the test is whether under the particular circumstances there is such an insuperable interference occurring without the party's intervention as could not have been prevented by prudence, diligence and care (Pacific Vegetable Oil Corporation v. C. S. T., Ltd. (1946) 29 Cal.2d 228, 174 P.2d 441). While ordinarily a drop in value in the stock market, be it dramatic or mild, would not excuse failure to perform, the extraordinary circumstances surrounding the coronavirus outbreak may be considered a circumstance warranting if not complete failure of performance then at least delay in performance. 

 

Given the uncertainty, buyer and seller are encouraged to use the new C.A.R. Form CVA, the Coronavirus Addendum or Amendment, to decide what will happen in the event an unforeseen circumstance prevents the transaction from closing escrow on time or at all.

 

What should I tell a client who wants to postpone listing their home for sale?

If a property is not yet listed, a broker may take a listing with a postponed effective date with written instructions from the seller. C.A.R. form SELM can be used for this purpose. In that form, paragraph 8C can be checked and a future date can be inserted in the blank fields. If the COVID-19 pandemic is not over by that date, then the broker and seller can agree to extend that date to another specific future date. If the seller wants to begin marketing and listing the property before the initial or extended date has been reached, then a written instruction to the listing broker will suffice. If the local MLS has already adopted the NAR Clear Cooperation Policy, then the seller must be informed that the property will be submitted to the MLS within one business day of any public marketing of the property.  

If property is not yet listed, another option is to enter into a listing agreement with a future effective date. However, if the seller sells the property prior to that date, then the broker is not entitled to any compensation since the contact has not become effective. And, in such a circumstance the listing agreement may not even become binding on the delayed effective date since the seller no longer owns the object of the listing.  

If the property is already listed for sale, the broker and the seller can use Paragraph 4 of the RLA-CAA to mutually agree to temporarily withdraw the property from the market and (if desired) extend the listing period by the same amount of time that the property remains withdrawn.

 

A client is closing escrow but doesn’t want to meet in person to sign documents. What can she do?

Unlike on the East Coast, in-person meetings are not contractually required in California. However, lenders may require that documents be signed and notarized in person and escrow may require a deed be notarized in person. Some lenders and escrows are relaxing these requirements to comply with local and state orders. In those cases, remote online notarization (RON) may be allowed. Please check with your client’s lenders and your escrow or title companies about how they are handling notarization at this time. If in-person notarization is still required and permissible in your area, it is possible to have a notary visit the person at home in order to minimize contact with outsiders. Notaries and signers should continue to follow all health and safety guidelines.   

 

My county recorder’s office is closed due to the coronavirus. Will my transaction close?

Luckily, many county recorder’s offices may be closed to the public but can still record documents via drop-off or electronic means. The California Land Title Association is maintaining a resource page that tracks how each county recorder is handling operations during this time. You can access that page here.

 

If your county recorder’s office is entirely closed, then your transaction will not close as scheduled. In this circumstance, it is unlikely that either buyer or seller will be considered in breach. If for no other reason, the date upon which escrow is supposed to close as defined by the purchase agreement (C.A.R. form RPA) excludes Saturdays, Sundays and legal holidays, and shall instead be the next non-excluded day. The clear implication is that Close of Escrow cannot contractually occur on a date the recorders’ office is closed. Contract law requires contracts to be interpreted to give effect to the intention of the parties (Civil Code section 1635) and delaying closing while recorders’ offices are closed would appear to be consistent with that intent, at least for a reasonable period of time.  

 

I have a client who is stranded overseas who needs to close escrow and sign closing documents. How do I handle this?

Contract requirements can be satisfied through electronic signatures. If a deed or loan document needs to be notarized, then the client may need to go to an embassy or consulate in order to sign those documents. If those offices are closed, buyer and seller, through their agents, should make efforts to reach a mutual extension or cancellation.  

 

How might tax withholdings for foreign transactions be affected by the coronavirus outbreak?

Under FIRPTA, buyer of property (both residential and non-residential) in the United States is required to withhold from the seller’s proceeds either 10 or 15 percent of purchase price and forward to the IRS if the seller is a foreign person, unless an exemption from withholding applies. One way to avoid withholding is for the seller to provide an affidavit stating both the seller’s social security (or taxpayer ID) number and a statement that the seller is not a foreign person. C.A.R. form AS, Seller’s Affidavit of Non-Foreign Status (FIRPTA), can be used for this purpose. The form, like other contractual documents, may be signed electronically and therefore should not be impacted by whether the seller is under mandatory quarantine, self-quarantine or social distancing. The statement can be provided directly to the buyer or to a title company acting as a “qualified substitute” who would then provide their own affidavit to the buyer.  

If the seller does not or cannot provide the affidavit AND the property is sold for $300,000 or less AND the buyer intends to owner-occupy, then the buyer can complete their own affidavit to that effect and avoid withholding. C.A.R. form AB, Buyer’s Affidavit, may be used for this purpose.  

 

How does a buyer overseas prove they have the deposit, down payment, closing funds, etc.?

An all-cash buyer is required to provide verification of the funds to the seller. See California Residential Purchase Agreement (C.A.R. form RPA) paragraph 3C. A buyer who is obtaining financing is required to provide written verification of down payment and closing costs. See California Residential Purchase Agreement (C.A.R. form RPA) paragraph 3CH. Seller has the right to disapprove of the buyer’s verification. See California Residential Purchase Agreement (C.A.R. form RPA) paragraph 14D(2). Ordinarily, money available in a U.S. bank account would be considered adequate to satisfy the buyer’s obligation. Very often the letter from the buyer’s lender demonstrating prequalification or preapproval of the stated loan includes a verification of the down payment or closing costs. Unless the seller has reason to be suspicious of the lender, that letter is typically adequate verification. If the buyer’s proof of funds comes from a foreign bank, the seller may consider the ready availability of funds from the foreign account and whether any disruption in the global transfer of funds will delay the transaction. These concerns existed prior to and will exist after the resolution of, the current situation with the novel coronavirus.

 

My foreign buyer client is purchasing rental property that I will be managing. What are the withholding requirements?

California and federal law impose withholding requirements on property managers acting on behalf of a foreign person who owns income-producing real estate. These laws are complex and affect the foreign person’s decision on what to purchase and how to hold title. These concerns existed prior to and will exist after the resolution of, the current situation with COVID-19.See C.A.R. Legal Q&As titled: “Foreign Investor Property Owner Withholding” and “Nonresident Property Owner Withholding” for further information.  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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