There are a host of new laws in 2021 for all areas of real estate that will likely concern landlords, potential buyers and renters.
Many of the new rules are aimed at increasing rentals, such as in homeowner associations, as well as protecting future buyers. California still has statewide eviction protections for those affected by COVID-19 going until the end of June, but there are plenty of other laws for agents and landlords to worry about.
Addressing new laws at the start of each year is a tradition of the Greater San Diego Association of Realtors. This year, the event was held online because of the pandemic and was led by Gov Hutchinson , assistant general counsel for the California Association of Realtors.
Here are some of the main laws he said would most affect real estate this year.
Homeowner association rentals (AB 3182)
Homeowner association laws must now allow at least 25 percent of their properties to be rented. In the past, an HOA could prevent any rentals or limit them to, say, 10 percent. The new law is aimed at creating more availability of rentals in California.
The law does not limit rentals to 25 percent, meaning the HOA could allow all properties to be rented in a condo building, townhouse development or single-family home community governed by an HOA. Hutchinson said some of the law might be left open to interpretation, such as if an HOA only has three homes and renting one unit would be more than 25 percent. He said his reading of the law would likely mean one unit could be rented out.
Another thing to keep in mind is the law also prevents HOAs from having rules that say an owner needs to live there more than a year to rent out a unit. Also, HOAs can still block short-term rentals.
Fire notice for new buyers (AB 38)
This law says buyers must be told if they live in a high-risk fire area. For buyers and real estate agents, it basically just means a one-page document needs to be signed at closing.
The seller must list things that could be vulnerable to a wildfire, such as roof coverings, rain gutters, vents that are not fire-resistant and any combustible landscaping.
The law is focused on homes built before 2010, before stricter building standards were adopted to protect from fire damage. The form gives buyers advice on preparing their home for a fire — called “fire hardening” in legal and real estate circles.
Real estate agents will need to determine if a property is in a high-risk fire area. Hutchinson said the easiest way to do that is to consult with companies that produce California Natural Hazard Disclosure reports.
Foreclosure: Right of first refusal (SB 1079)
This law is aimed at stopping a repeat of the Great Recession when investors snapped up a large amount of foreclosed properties. Early in the pandemic, many lawmakers were concerned the same thing would happen again.
This legislation creates new ways an investor could lose a property even after winning it at auction.
Under the new law, if a buyer purchases a home at auction, and does not plan to live in it, a renter in the property can try to get the property themselves. The tenant could submit to buy the property in the next 15 days after the auction.
If they come up with the money (through a mortgage is fine) in 45 days, then the person who won the auction has lost the home. The amount of money paid by the tenant must match the price the auctioneer paid.
There is also an additional way the investor could lose the home over the next 45 days. If the renter doesn’t want to put in an offer, anyone who would want to live there as a primary residence can bid on the property — as long as their offer is more than what the investor paid. The same thing goes for a nonprofit that would like to use the home as subsidized housing.
This second scenario might be rare because the potential rival buyer or organization could have just gone to the auction.
The bill’s author, state Sen. Nancy Skinner, D-Berkeley, described the legislation this way: “SB 1079 sends a clear message to Wall Street: California homes are not yours to gobble up; we won’t tolerate another corporate takeover of housing.”
A scenario similar to the Great Recession where foreclosed properties were bought en masse has not happened. First, there are protections against foreclosure if missed mortgage payments are tied to job or health costs related to COVID-19. Second, foreclosures are unlikely in the current environment as people behind on bills could sell the home as prices rapidly rise.
One other factor of the law aimed at stopping investors is preventing numerous homes from being bundled together at auction and instead requires each to be sold individually. The theory is this would give potential homebuyers a better chance at winning the home over an investor.
Homestead Exemption (AB 1885)
Everyone who owns a home in California is eligible for a homestead exemption, which protects against losing your property if you file for bankruptcy or to other creditors. The amount of the exemption, though, has not changed in decades nor has it kept pace with the state’s rising housing prices. But, the law gets a big boost this year.
Starting this year, $300,000 to $600,000 of a home’s equity can’t be touched by judgment creditors. This change is designed to make it more likely for a person to extinguish their debts and keep their homes.
For a lien to be put on a property, the judgment must be high enough to pay median home price, at a maximum of $600,000. Note: In San Diego County, the median home price is more, $645,000 as of December. So, unless the San Diego homeowner owes more than $600,000, there’s a good shot they can keep their home despite a lien.
Before this law, the lien was allowed — which could mean an eventual foreclosure — on a home as long as the judgment was $75,000 for an individual, or $100,000 if more than one person is in the house.
Of course, judgments could always lead to garnished wages or financial stress that mean the homeowner has to sell anyway. But, at least it will probably not lead to a foreclosure, and most likely a traditional sale.
Prop.19
This law allows Californians 55 years old and older to sell their existing house, buy another house and take their property tax with them. Typically, homes after purchase have values reassessed and tax rates go up. This change allows older Californians to have a much lower, blended tax rate if they move.
Under Prop. 19, a person can move three times and still get tax benefits anywhere in California. The law also applies to people with severe disabilities or those who lost their homes in a natural disaster.
People who take advantage of Prop. 19 can buy a more expensive home and blend the taxable value of their house with whatever they had. This will create a lower tax bill than if they bought a new home and had it reassessed at fair market value.
This is how law and legal analysis firm JD Supra described it: If a senior couple sold their home with an assessed value of $250,000 for $2 million and bought a new home for $3 million, the new home’s assessed value would be $1.25 million, which is the $250,000 assessed value, plus the $1 million increase in home value.
Of growing concern to parents, Prop. 19 eliminates or reduces tax benefits for transferring property to children. If a child gets a home and decides to live in it full-time, then the tax rate will stay the same. However, this only applies if the home is not more than $1 million, whereas the previous law of the land had no cap.
If a child does not want to live in the house as a primary residence, they lose all tax benefits. Instead, the home’s tax rate will be based on the assessed fair market value.
The idea behind the law was getting older folks to move and free up supply for young families. However, most local economists and housing experts have told The San Diego Union-Tribune that the law is unlikely to greatly increase the housing supply. One concern is older Californians looking to downsize, incentivized by a lower tax rate, could be competition for first-time buyers trying to get their first property.