2009 Legislative Update

Missouri & Kansas Government Affairs Committee

January 16, 2009

Bottom Line: How Does Governmental Affairs and

RPAC Help You?

▪ RPAC protects your profitability by keeping the real estate industry and your individual business healthy!

▪ We interact with elected officials and defeat unfriendly proposals so you can focus on what you do best – provide quality service to your customers and clients and make

money!

Update on Federal Issues

RESPA Reform

▪ On November 13, HUD issued a final rule containing several important reforms to RESPA.

▪ Starting on January 1, 2010, this rule will require a new three-page good faith estimate (GFE) and a three-page HUD-1/HUD1A that will provide more information to consumers on closing and mortgage loan costs.

▪ The original proposal would have mandated that closing agents and REALTORS® read a 45-minute script to all customers at closing. In response to our concerns, this requirement was eliminated.

▪ This rule also prohibits the actual charges at closing from exceeding the estimated amounts included in the binding GFE. This will help prevent a “bait-and-switch” approach to settlement service fees.

Economic Stabilization

▪ This legislation provides the Treasury Department with $700 billion to purchase equity stakes in financial institutions, purchase mortgage-backed securities and inject liquidity into the financial markets.

▪ While this legislation was unpopular, the real estate industry would have been significantly harmed had it failed!

Fannie Mae and Freddie Mac Reform

▪ Passed legislation that includes reforms to strengthen the stability and oversight of Fannie Mae and Freddie Mac.

▪ Fannie Mae and Freddie Mac guarantee nearly 70% of the residential mortgages issued in this country.

▪ If these entities were allowed to fail, financing for residential mortgages would disappear overnight!

▪ These reforms will ensure that Fannie Mae and Freddie Mac have the ability to continue to purchase a large amount of residential mortgages on the secondary market.

First-Time Homebuyer Tax Credit

▪ Passed legislation that created a new, temporary tax credit to provide an incentive for first-time homebuyers to purchase a home in the next year.

▪ The $7,500 credit will be available to all first-time homebuyers who purchase a home between April 9, 2008 and July 1, 2009.

▪ There are income restrictions and the credit must be repaid over the course of fifteen years (or when the home is sold if that occurs before fifteen years).

Form 5405 First-Time Homebuyer Credit

Housing Stimulus 4 Point Plan

▪ Expand the $7,500 first-time homebuyer tax credit to all buyers of a new and existing home. Eliminate the repayment requirement for the $7,500 homebuyer tax credit.

▪ Make the 2008 FHA, Fannie Mae & Freddie Mac limits permanent.

▪ Target more funds to mortgage relief efforts and increase efforts to mitigate foreclosures.

▪ Make permanent the prohibition against banks entering real estate.

Seller-Financed Downpayment Assistance Programs

▪ As part of the housing stimulus legislation, Congress enacted legislation that prohibited seller-financed downpayment assistance programs.

▪ In prohibiting these programs, HUD had presented evidence showing that mortgages originated in connection with these programs experienced a default rate that was three times higher than normal.

▪ NAR supports legislation to reverse this prohibition, but it includes numerous reforms to the old system that will make it harder to qualify for these programs.

Affordable Health Insurance

▪ Introduced legislation to create a new program to provide affordable health insurance to small business employees and self-employed individuals.

▪ This program would provide a tax credit of up to $1,800 per individual or $3,600 per family for self-employed individuals (like REALTORS®) to purchase health insurance on the private market.

▪ 25% of REALTORS® do not have health insurance and cost is the main reason cited for a failure to purchase health insurance coverage. This legislation could reduce monthly premiums by up to 40%.

Legislation Passed by KAR During the 2008 Legislative Session

HB 2315 - Regulation of the Home

Inspection Industry▪ Requires all home inspectors to register with a new,

independent home inspection board. The board will require all home inspectors to meet certain standards to become registered under this act.

▪ Starting on July 1, 2008, prohibits all home inspectors from limiting their liability for errors and omissions to less than $10,000. In the past, nothing prevented a home inspector from including a provision in a home inspection contract that limited their liability for errors and omissions to the price of the home inspection ($250 to $350).

In counties with greater than 60,000 in population, all home inspectors will need to register under this act by July 1, 2009, and under 60,000 by July 1, 2011.

Additional Legislation Passed During the 2008 KAR Legislative Session

SB 577 – New Language on Radon Gas in Every Residential

Real Estate Contract

▪ In order to defeat the other radon-related requirements in SB 577, KAR was forced to agree to the addition of new language in the residential real estate contract on radon gas.

▪ After July 1, 2009, every residential real estate contract shall be required to contain the following language on radon gas:

‘‘Every buyer of residential real property is notified that the property may present exposure to dangerous concentrations of indoor radon gas that may place occupants at risk of developing radon-induced lung cancer.  Radon, a class-A human carcinogen, is the leading cause of lung cancer in non-smokers and the second leading cause overall.  Kansas law requires sellers to disclose any information known to the seller that shows elevated concentrations of radon gas in residential real property.  The Kansas department of health and environment recommends all homebuyers have an indoor radon test performed prior to purchasing or taking occupancy of residential real property.  All testing for radon should be conducted by a radon measurement technician.  Elevated radon concentrations can be easily reduced by a radon mitigation technician.  For more information, please go to http://www.kansasradonprogram.org.” 

HB 2746 – Various Changes to the Real Estate License Act

▪ Introduced by the Kansas Real Estate Commission, HB 2746 increased fines for violations of the real estate license law, created a new class of violations with a higher maximum fine, and added new violations into the real estate license law concerning unprofessional conduct by real estate licensees.

▪ Increased the maximum fine for basic violations of the license law and BRRETA from $500 to $1,000.

▪ Creates a new class of violations concerning mortgage fraud, forgery and intentional non-disclosure of adverse material defects with a maximum fine of $5,000 per violation.

▪ Provides the Commission with new authority to punish real estate licensees for various acts of unprofessional conduct.

HB 2772 – Mandatory Licensure for

Real Estate Appraisers

▪ Requires real estate appraisals in Kansas to be conducted by licensed real estate appraisers.

▪ Previous law allowed unlicensed individuals to conduct appraisals when a property has a fair market value less than $250,000 and when that mortgage will not be sold on the secondary market.

▪ KAR was able to secure an exemption to ensure that REALTORS® are still able to provide brokers’ price opinion and comparative market analyses to customers, clients and third parties for compensation.

Legislation Defeated by KAR During the 2008 Legislative Session

SB 331 – Increased Mortgage Registration Taxes

SB 605 – Increased Document Recording Fees on Real Estate Transactions

▪ Under current law, the average homebuyer in Kansas pays an additional $315 in closing costs on the purchase of a home because of the mortgage registration tax.

▪ This legislation would have increased the existing mortgage registration tax by up to an additional $50 per transaction to finance various programs unrelated to housing. This would have resulted in an increase of nearly $4.5 million in closing costs for homebuyers in Kansas.

▪ Under current law, homebuyers in Kansas pay an average of $85 in closing costs on the purchase of a home due to fees to record the real estate-related documents.

▪ This legislation would have increased these fees by approximately $15 per transaction to finance various programs unrelated to housing. This would have resulted in an increase of nearly $2.5 million in closing costs for homebuyers in Kansas.

HB 2147 – Increased Excise Taxes on Real Estate

Development

▪ Would have imposed a new 1.5% excise tax on the fair market value of any agricultural land that was rezoned for new residential and commercial real estate development.

▪ For example, assume that a developer has purchased a plot of agricultural property valued at $1.0 million to build a new residential subdivision. When the developer sought to rezone that land for residential use, an excise tax of $15,000 would have been required before the land would be rezoned.

▪ Even though excise taxes are paid by the developer, the cost is rolled into the cost of the property and increases the purchase price for the eventual buyer.

SB 274 – Major Increases in Premiums for Homeowners’

Insurance

▪ Would have allowed insurance companies to increase the cost of homeowners’ insurance premiums without review by the Kansas Insurance Department.

▪ Under current law, insurance companies are required to file premium rates with the Kansas Insurance Department. The department has the authority to review these rates and reduce the proposed premiums if they are excessive.

▪ The passage of this legislation would have removed this oversight authority from the department and could have increased homeowners’ insurance premiums by up to 40% in the next few years.

SB 577 – Require a Test for Radon Gas in Every Real Estate

Transaction

▪ Would have required a mandatory test for radon gas in every residential real estate transaction.

▪ Also would have required REALTORS® to complete a separate disclosure form for radon gas that is similar to the lead-based paint disclosure form.

▪ If the mandatory test for radon gas was not conducted or the disclosure form was not properly completed, sellers and REALTORS® could have been fined up to $10,000 per violation.

Legislation Passed by MAR During the 2008

Legislative Session

SB 907 – Prohibition of Private Transfer Fee Covenants

▪ Instrument which “encumbers an owners property with the obligation for all future buyers of the property to pay a 1% “transfer fee” for the next 99 years,”

▪ MAR pro-actively outlawed these payments, often required to be paid to home builders or developers by all subsequent property owners, before the trend spread to Missouri.

▪ The potential for damage to the real estate economy over the long term from these instruments is significant.

SB 788 – Commercial License Portability

▪ Establishes a system for out of state licensees to affiliate with a Missouri real estate broker to participate in a commercial transaction.

▪ Requires out-of-state licensee to have executed a brokerage agreement with a Missouri broker, consented to jurisdiction of Missouri and the commission, consented to certain disciplinary procedures, and appointed the Missouri real estate commission as his or her agent for service of process.

▪ Important fix to allow Missouri commercial brokers to legally operate in global commercial real estate market.

HB 2188 – Civil and Criminal Penalties for Mortgage Fraud

▪ Authorizes a civil penalty of up to $5,000 for any violation of current MO mortgage fraud laws

▪ Specifies that licensed real estate brokers, salespersons,and appraisers can be brought before the Administrative HearingCommission and lose their license for committing mortgage fraud.A licensee who is criminally convicted of mortgage fraud willautomatically have his or her license revoked

▪ Specifies that any person committing mortgage fraud will beguilty of a class C felony.

Legislation Defeated by MAR During the 2008

Legislative Session

Increased Document Recording Fees on Real Estate

Transactions

▪ Multiple bills filed to increase the document recording fees, most to increase funding for the Missouri Housing Trust Fund.

▪ Various bills proposed anywhere from a $3 to $12 increase in document recording fees.

▪ An ongoing effort from social welfare agencies across the state that will continue in 2009.

HB 2112- Sales Tax on Services

▪ “Fair Tax” bill introduced in Missouri House this session.

▪ The concept is to do away with all income taxes and impose a state consumption tax (sales tax) on everything, including professional services provided by, among others, Realtors.

Looking Ahead – The 2009 Legislative

Session

In Topeka (closing the budget gap)

▪ Sales Tax on Services – Repeal exemption on sales tax on services. The average local sales tax rate is 7.3%. Imagine a 6% commission on the sale of a $200,000 home. Before you even subtract the brokerage fees and cooperating share, you would be required to pay an $876 sales tax to the state.

▪ Transfer tax on real estate - 37 states already impose. In Pennsylvania, sellers pay a 4.0% tax to the state on the sale or transfer of any property. Imagine you have sold a $200,000 home. At closing, the seller must pay an $8,000 sales tax to the state out of the proceeds (if any).

In Topeka ▪ Private transfer fees are hidden fees that are

concealed deep within the fine print of real estate deed covenants that require the parties to the transaction to pay a fixed-percentage of the sales price to a third party.

▪ Because of their concealed nature, many

homebuyers and REALTORS® are unaware of these fees when they make a decision to purchase a home and are unable to consider the implication of these fees before closing.

▪ KAR will introduce a bill to prohibit this in

Kansas.

In Jefferson City ▪ BUDGET▪ Establish Regulation and/or Licensure of Home

Inspectors, identified by our Missouri Governmental Affairs Committee as the #1 State Legislative Priority,

▪ Oppose mandatory sunset of statewide development tax credits.

▪ Continue to push for increased regulations and penalties for cases of mortgage fraud and predatory lending.

▪ Continue to oppose increases to document recording fees.

▪ Continue to oppose attempts to enact sales taxes on services.

Update on Regulatory Issues

New Restrictions on Advertising by Salespersons and Teams

▪ All advertising must prominently display the name of the supervising brokerage.

▪ Terms “real estate” and “realty” cannot be used in trade names for salesperson and team advertising.

▪ Commission will start issuing substantial fines for violating these requirements starting on July 1, 2009.

All Compensation for BPOs and CMAs Must Be Funneled Through

the Supervising Broker

▪ Associate brokers and salespersons are prohibited from accepting compensation for real estate-related activities from sources other than the supervising broker.

▪ BPOs and CMAs are a real estate-related activity and compensation for those activities must be funneled through the supervising broker.

▪ The supervising broker must maintain all records relating to BPOs and CMAs for a period of three years under K.A.R. 86-3-10.

Short Sales are a Material Defect That Must Be Disclosed in the

Real Estate Transaction

▪ Short sales are adverse material defects under the Brokerage Relationships in Real Estate Act (BRRETA).

▪ As a result, a real estate licensee must disclose to all parties in the real estate transaction when they have actual knowledge that a short sale situation exists.

▪ If the real estate licensee had actual knowledge and did not make this disclosure, they may be disciplined by the Commission for failure to disclose an adverse material defect.

Licensees Must Disclose When They Have an Interest in Property Subject to

the Real Estate Transaction

▪ The Commission has revised the regulation (K.A.R. 86-3-19) that requires real estate licensees to disclose when they have an interest in the property subject to the real estate transaction.

▪ As a result, a real estate licensee must make a disclosure in the real estate contract when they (or an immediate family member) has an “interest” in the property.

▪ “Interest” means any type of ownership or service as an officer, member, partner or shareholder in any entity that owns the property.

Local Issues in MO and KS

Local Issues MO & KS▪ Local Sign Ordinances▪ Annexation▪ Rental Property/Vacant Property

Regulations ▪ Property Taxes ▪ Foreclosure issues▪ Transportation Issues▪ Zoning Ordinance Revisions▪ Upcoming Municipal Elections

How Can You Help Us Spread the Word About

Our Industry?

Participate in the Calls for Action

▪ On major issues, NAR, KAR. And MAR will issue Calls for Action to members.

▪ It literally takes only two clicks of your mouse and less than 10 seconds to participate in a Call for Action and generate support for our vital issues at the state and federal level!

▪ This is the easiest way to generate support for our issues. Legislators pay attention and will listen when they cast a vote on our issues.

The First Key to Unlock the Housing Crisis The keys to unlock the housing crisis are in the hands of Congress.  REALTORS have spent the last three months educating Congress on NAR's Four Point Housing Stimulus Plan to grow our economy, spur home buying, encourage lending and curb foreclosures. Today we need your help in handing Congress the first key -- the $7500 Homebuyer Tax Credit. Over the next week, the critical work in forging one key component of the new stimulus bill will begin in  Committees that govern economic and financial matters.As a constituent of the select few Congressmen who serve on one of these powerful committees, you are being called upon to help ensure the Homebuyer Tax Credit is included in the larger economic stimulus bill on behalf of all REALTORS. Please don't let them down. Let your elected official hear from you today on how important this is to unlock the housing market.                      Send a letter your elected official that serves on one of the following committee(s): House Committee on Ways and Means Senate Committee on Finance

Below is the sample letter:Subject: Include Housing in the Recovery and Reinvestment ActDear [decision maker name automatically inserted here],Congress did a good thing in 2008 when it enacted the $7500 first-time homebuyer tax credit. Unfortunately, the tax credit is not generating the stimulus that either Realtors or legislators had expected. In our area, we are finding that prospective homebuyers simply see no incentive effect in a tax benefit that will have to be paid back over time. At a time when people are trying to minimize their debt loads, the tax credit is perceived as simply adding to their debt, not as providing a benefit.

A further challenge with the repayment feature is that there is literally no one who can explain the mechanics of how the credit will be paid back. No other tax credit available to individuals must be paid back. Thus, there is no precedent that would suggest a model for how taxpayers would make the payment. As the repayments will not commence until 2010, the IRS has not yet provided guidance. Thus, Realtors can provide no explanation to prospective purchasers who are reluctant to undertake a tax obligation they don't understand.

Contribute to RPAC

▪ Our goal is to simply ask each members to invest $25 and brokers $100 in RPAC each year.

▪ In return for this small contribution, you allow us to continue to have the political power that is needed to defend the real estate industry from these negative attacks and harmful proposals.

Just because you do not take

an interest in politics doesn’t

mean politics won’t take an interest in you!

Contact Info

Derek RamsayVice President for Missouri Governmental

AffairsOffice: 913-266-5910

Cell Phone: 816-721-4823Email: derekr@kcrar.com

Cindy GreenVice President for Kansas Governmental Affairs

Office: 913-266-5916Cell Phone: 913-206-7304Email: cindyg@kcrar.com