Information for the property owner.

Liability for Injuries Caused by Dog

According to the Center for Disease Control, as many as 800,000 dog bites require medical attention every yeari. With a growing awareness about the dangerous propensities of certain dog breeds, pressure is mounting to restrict access to, and the availability of, these breeds. Moreover, as property and casualty insurers become increasingly selective about the policies they write, it is becoming the standard to evaluate the potential for liability caused by the presence of certain dogs.
Under California law, in a “dog-bite” case against an owner or manager, a plaintiff must show that (a) the dog had a history of behavior similar to what caused the present injury, (b) the owner or manager had actual knowledge of the dog’s dangerous propensities (c) the owner or manager had an opportunity to control the dog or evict the owners of the dog, and (d) as a result of the owner’s/manager’s failure to do so, the injuries happened.
Owner’s Duty of Care Regarding Tenants’ Dogs on Residential Property
The standard of care applicable to owners of residential rental property with respect to tenants’ dogs was set in 1975 by the court in Uccello v. Laudenslayer. In Uccello, the court held that an owner owes a duty of care to his tenant’s guests to prevent injury from an attack by a vicious dog kept by the tenant on the leased premises if the owner has (1) actual knowledge of the presence of the dangerous animal and (2) the right to remove the animal by retaking possession of the premises. Where the circumstances are such that the defendant “must have known” and not just “should have known” an inference of actual knowledge will be permitted. When there is a lease, rather than a month-to-month rental agreement, the owner’s right to remove a tenant or dog from the premises will depend on the terms of the agreement. Lease provisions that can protect owners who allow dogs are discussed below. The court also held that the owner has no duty to inspect the premises for the existence of a tenant’s dangerous animal. Uccello v. Laudenslayer (1975) 44 Cal.App.3d 504.
Owner’s Duty Regarding a Dangerous Dog in the Neighborhood
Generally, courts have refused to impose a duty on owners to protect against dangerous conditions off the premises, or dangerous persons or animals over which the owner has no control or that come onto the property in a location, or manner over which the owner has no control. Liability could result, however, if the injury is caused by the owner’s negligent maintenance of their property, such as if the dog came on the property due to the owners’ failure to repair a fence.
Insurance and Lease Provisions Regarding Pets
Many insurance companies have adopted guidelines that refuse coverage if certain dog breeds are on the (insured) property. Some California property and casualty insurers will not issue a policy if the following dog breeds are located at the property: Pit bulls, Dobermans, Rottweilers, Akita’s and “Wolf mixes.” This list is not exhaustive and companies may add additional breeds at their discretion. Owners should consult with their insurance carriers regarding appropriate dog policies, including types of dogs that should not be allowed on the property. Many policies exclude injuries caused by certain breeds. No state (including California) prohibits an insurer from considering particular dog breeds when underwriting property insurance policies. Some insurers see this lack of prohibition as license to exclude certain
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breeds altogether or to charge a premium surcharge – that is an additional fee – if the insured wants to cover a listed breed.
Any rental agreement that allows a tenant to have a dog should be consistent with the owner’s insurance coverage and clearly should authorize the owner to evict a tenant who harbors a dog with dangerous propensities.
Any lease that allows pets should contain the following types of provisions:
• A description of pet behavior that is unacceptable. CAA’s Pet Addendum states that a resident shall not permit a pet to cause any damage, discomfort, annoyance, nuisance, or in any way inconvenience or cause complaints. The addendum also does not allow the pet outside the unit unless it is on a leash.
• A clear statement that the breach will be grounds for termination. CAA’s Pet Addendum provides that in the event of a violation of its terms, the tenant will either cure the default or vacate the premises within three-days. The addendum also allows the owner to revoke permission to keep the pet.
• A provision that holds the tenant liable for any damages caused by the pet. CAA’s Pet Addendum provides that the resident shall be liable to the owner for all damages or expenses incurred by, or in connection with, the pet and that the resident shall hold the owner harmless and indemnify the owner for any and all damages or costs in connection with the pet.
These types of provisions allow the owner to protect other tenants, guests and neighbors from a dog with dangerous propensities and protect the owner’s investment in the property.
Local Ordinances – Breed Specific Laws
It’s not just insurance companies that are taking action against certain dog breeds. A small but growing number of municipalities are banning or otherwise restricting ownership of certain dog breeds. In California, Lake County, Santa Monica, Naval Base Ventura County, Point Mugu and Point Hueneme have adopted ordinances banning certain breeds. In addition, state law expressly authorizes local governments to enact breed-specific ordinances pertaining to mandatory spay or neuter programs and breeding requirements (but prohibits naming certain breeds as inherently dangerous) (California Food & Agriculture Code, Section 31683).
Dog bite law is a unique combination of city and county ordinances, state statutory law, case law, and the common law. California Law recognizes that some dogs have become a serious and widespread threat. Under the law, a dog is considered potentially dangerous when unprovoked, it behaves in any manner that requires defensive action to prevent bodily injury, bites a person causing injury, or kills, seriously bites, or injures a domestic animal. A vicious dog under the law is one which inflicts severe injury on or kills a human being (California Food and Agriculture Code, Section 31601).
What Owners Should Do
Review your guidelines to ensure that they provide you and your tenants with the protections needed if you ever have a tenant with a dangerous animal.
Examine your rental/lease agreement and your policies to ensure that your statements are clear concerning pets at the property.
If you have actual knowledge of the dangerous propensity of a dog, take action immediately; serve proper notices on the tenant, and call animal care and control. Let other tenants and neighbors know about the actions you have taken.
Work with your insurance company to develop and employ pet policies.
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Related Items and Information:
• CAA Form 13.0 – Pet Agreement
• CAA Form 13.0-I – Pet Agreement Instruction Sheet
• CAA Form 5.0 – Notice of Changes of Terms of Tenancy
End Notes:
i A survey by the national Centers for Disease Control and Prevention in Atlanta (“CDC”) concluded that dogs bite nearly 2% of the U.S. population — more than 4.7 million people annually. (Sacks JJ, Kresnow M, Houston B. Dog bites: how big a problem? Injury Prev 1996;2:52-4.) Almost 800,000 bites per year — one out of every 6 — are serious enough to require medical attention. (Weiss HB, Friedman D, Coben JH. Incidence of dog bite injuries treated in emergency departments. JAMA 1998;279:51-53.)

When is a Pet Not a Pet? Accommodating Persons with Disabilities

I
INTRODUCTION
Many property owners protect their investment by not allowing any (or certain types) of pets on the property due to possible damage by the pet and the fact that existing law may not allow for an adequate security deposit to cover the damage. However, recent laws on fair housing and accommodating persons with disabilities now restrict the ability of owners to have an “absolutely no pets” policy.
A guide dog leading a blind person is the image that usually comes up when someone thinks of a service animal helping a disabled person. However, guide dogs are not the only type of animal that can be considered a “necessary and reasonable accommodation,” and federal and state anti-discrimination laws broadly define disabilities to include both physical and mental impairments.
This paper will provide needed background and guidance for owners who have questions concerning this issue.
II
FEDERAL LAW
A. The Federal Fair Housing Act (FHA)
The Federal Fair Housing Act, as amended by the Fair Housing Amendments Act of 1988, requires property owners to make reasonable accommodations for a person with a disability, to enable them to enjoy the residence on an equal basis with tenants who are not disabled. 42 U.S.C. §3604(f)(3)(B).
The fair housing regulations state that “It shall be unlawful for any person to refuse to make reasonable accommodations in rules, policies, practices or services, when such accommodations may be necessary to afford a handicapped person equal opportunity to use and enjoy a dwelling unit, including public and common areas.” 24 CFR §100.204(a).
The only specific mention of pets or service animals in either the law or regulation is the following illustration given in the regulations which address an owner’s failure to make a necessary and reasonable accommodation:
A blind applicant for rental housing wants to live in a dwelling unit with a seeing-eye dog. The building has a no pets policy. It is a violation…for the owner or manager… to refuse to permit the applicant to live in the apartment with a seeing eye dog because without the seeing eye dog, the blind person will not have an equal opportunity to use and enjoy a dwelling. 24 CFR §100.204(b).

B. Americans with Disabilities Act (ADA)
The ADA does not apply to private residential rental properties, except to the extent that the property is also a place of “public accommodation.” For example, the ADA would apply to an apartment complex rental office and to a unit used as a retail store, for example. The ADA specifically requires that service animals used by disabled individuals be allowed in places of public accommodation. ADA Title III, §36.302. “Service animals” include guide dogs, signal dogs, and or other animals individually trained to do work or perform tasks for the benefit of an individual with a disability. ADA Title III §36.104.
Although they are not directly applicable, agency interpretations of the term “service animal” under ADA can shine some light on what animals (at a minimum) could be considered reasonable accommodations under the provisions of the Fair Housing law. It is important to remember that the FHA is broader than the ADA because it allows any animal if it is a necessary and reasonable accommodation, rather than just “service animals” with a particular type of training.
Under the ADA, it is clear that an animal other than a dog can be a service animal, as long as it has the training to be a “service animal.” In an opinion issued by the US Attorney General-Civil Rights Division, a disabled individual entering a hotel accompanied by a monkey as a service animal is presented as an example of a situation where the ADA applies – opinion letter of USAG, Civil Rights Division to Corey Hudson 10/26/92 DJ#192-06-00029.
III
CALIFORNIA LAW
California’s fair housing law (the Unruh Civil Rights Act) mirrors the language of the federal Fair Housing Act. “Any person renting, leasing, or otherwise providing real property for compensation shall not refuse to make reasonable accommodations in rules, policies, practices, or services when those accommodations may be necessary to afford an individual with a disability equal opportunity to use and enjoy the premises.” Civil Code §54.1(b)(3)(A).
Like the federal act, California does not define “reasonable accommodation.” The California law does not address service animals, with the exception of service dogs. As a result, an owner with a “no pets” policy may have to allow a cat or other animal if it is a reasonable accommodation, even if it is not trained as a service animal.
The California Civil Code defines disability in essentially the same way as federal law: “[A] physical or mental impairment that substantially limits one or more major life activities of the individual.” Civil Code § 54(b). California law also forbids property owners from inquiring about the disability of any person seeking to rent any housing accommodation. Government Code §12955(b).
IV
RELATIONSHIP BETWEEN STATE AND FEDERAL LAW
It is clear from court decisions and agency interpretations of the federal fair housing law and the ADA, that federal law controls when it is more protective of the disabled person. In the Bronk case, the court ruled that it was wrong to use standards borrowed from state and local laws to evaluate the concept of “reasonable accommodation” under the federal fair housing law, because the state and local laws were narrower (they required formal training). The U.S. Attorney General has also stated that the ADA does not preempt State law, if the State law provides protection greater than that provided by the ADA. The ADA does, however, prevail over conflicting state laws that provide lesser protection – See opinion letter of USAG, Civil Rights Division to Corey Hudson 10/26/92 DJ#192-06-00029.
As a result, an owner who complies with California law could still be in violation of federal law. As discussed above, the question is whether the animal helps the particular tenant with his/her disability.

V
PUBLICLY OWNED HOUSING
California Law requires that public agencies that own or operate rental housing accommodations cannot prohibit a “person requiring supportive services” as defined in Health & Safety Code §50685.5 or an elderly person (over 62) from keeping not more than two pets – Health and Safety Code 19901. This law does not require the animal to be a “service animal” at all.
VI
BASIC QUESTIONS AND ANSWERS
1. What is a disability?
“[A] physical or mental impairment which substantially limits one or more major life activities… “such as caring for one’s self(sic), performing manual tasks, walking, seeing, hearing, speaking, breathing, learning and working.” 24 CFR §100.201. A landlord cannot ask whether the person is disabled, what kind of disability the person has, or how severe the disability is. 24 CFR §100.202. “If a landlord is skeptical of a tenant’s alleged disability or the landlord’s ability to provide an accommodation, it is incumbent on the landlord to request documentation or open a dialogue” with the tenant. Jankowski Lee and Assoc. v. Cisneros (7th Cir1996), 91 F3d 891. Since the owner cannot ask about the disability, the owner should ask for documents showing that the dog or other animal is a reasonable accommodation and how it is necessary for use and enjoyment of the building.
2. What kind of animal is a necessary and reasonable accommodation?
Although it is clear that the FHA does require that service animals be allowed in a residential dwelling when reasonable and necessary to afford a disabled individual fair use and enjoyment of the property, it is not clear what type of animal is “necessary and reasonable.” A federal appeals court has ruled that the reasonableness of a requested accommodation is a question of fact, determined by close examination of the circumstances. U.S. v. California Mobile Home Park Management Co., (9th Cir. 1994) 29 F3d 1413. To be reasonable, the accommodation “must facilitate a disabled individual’s ability to function and it must survive a cost benefit analysis that takes both parties’ needs into account.” Bronk v. Ineichen (7th Cir. 1995) 54 F3d 425.
• The animal must facilitate the disabled individual’s ability to function. To prove that an accommodation is necessary, a plaintiff must, at minimum, show “that the desired accommodation will affirmatively enhance a disabled plaintiff’s quality of life by ameliorating the effects of the disability.” Bronk v. Ineichen, (7th Cir. 1995) 54 F3d 425. In Bronk, the property owner argued that the tenant’s dog was not a service animal because it had no formal training. The court ruled that the jury should evaluate the dog’s ability to help the plaintiff and assign its own weight to the lack of formal schooling. In some situations, no training may be necessary for the animal to ameliorate the effects of a tenant’s disability. A HUD administrative law judge has ruled that a dog with no particular training was a necessary and reasonable accommodation for a tenant with severe recurring depression. HUD v. Riverbay Corp., HUD ALJ 02-93-0320-1.
• Restrictions on type of animal. Because the act does not define “reasonable accommodation,” there is no clear guidance on what types of animals must be allowed as accommodations for disabled tenants. Dogs are the most common, but not the only animals requested by tenants. In some circumstances, other animals such as cats or monkeys could arguably be necessary and reasonable accommodations as long as they ameliorate the effects of the tenant’s disability.
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• Licensing or training requirements. Property owners cannot require that a service dog have certificate from a state-licensed training school. Bronk v. Ineichen, (7th Cir. 1995) 54 F3d 425. By analogy, an owner could not demand that an assistance dog have an official tag. Again, the issue is whether the animal facilitates the individual’s ability to function. This may or may not require special training or licensing.
3. What is the difference between companion and service animals?
Generally, “service” animal refers to an animal that has specific training to assist a disabled person, such as a dog who will alert a resident to sounds such as knocks at the door and the telephone ringing. A companion animal is one that helps the disabled person but does not have special training. For the severely depressed condominium owners in the Auburn Woods case, simply taking care of a dog alleviated their symptoms and enabled them to function more productively. In 2004, the California Court of Appeal ruled that Auburn Woods was required to allow the disabled homeowners to keep their small dog as a reasonable accommodation. (Department of Fair Employment & Housing v. Auburn Woods I Homeowners Association)
4. If the tenant does not have an obvious disability, or the need for the accommodation is unclear, what kind of verification can I get?
You may request:
• Verification that the tenant/applicant is disabled as defined under California law (has a physical, mental, or medical condition that limits one or more life activities). You may not inquire about the nature of the disability.
• A description of the needed accommodation and information that shows the relationship between the person’s disability and the need for the requested accommodation.
Who can provide the verification?
According to the U.S. Department of Housing and Urban Development, depending on the individual’s circumstances, information can be provided by the individual (i.e., receipt of Social Security disability insurance benefits) or by a third party who is in a position to know about the individual’s disability (a medical professional, peer support group, non-medical service agency, or other reliable third party).
5. Does this only apply to dogs or also other animals? I read that the Americans with Disabilities Act (ADA) only requires me to allow dogs, not other types of animals.
The Americans with Disabilities Act regulations were recently revised to define service animals as dogs, and in some cases miniature horses. However, this definition applies only to “public accommodations,” i.e., places that are open to the public. The fair housing laws that apply to rental housing do not restrict the type of animals that can be a “reasonable accommodation.”
6. What about “dangerous breeds?”
Strict prohibitions on specific breeds, sizes, or types of animals are generally not permissible. For example, a resident may request to have a pit bull as a reasonable accommodation. The reasonability of that accommodation will depend on the particular dog, not the breed characteristics. The owner is not required to make an accommodation if the dog poses a “direct threat.” This does not mean that an owner can refuse all pit bulls, but must instead evaluate the particular pit bull that belongs to the resident or applicant. If the dog has a history of aggressive behavior (regardless of breed), that may be a reason to negotiate a different accommodation with the resident. When a requested accommodation is unreasonable, the owner has a duty to engage in the “interactive process” with the resident/applicant to find an alternate accommodation. (See also CAA Industry Insight – Liability for Injuries Caused by Dogs)
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It is also possible for an assistive animal to be “exotic,” such as a monkey that helps feed a disabled person. Dangerous animals such as rattlesnakes or tigers would not be reasonable, nor would animals that are illegal to own in California, such as ferrets.
7. What if I am required to have breed restrictions by my insurance company?
One of the exceptions to the duty to make reasonable accommodations is if the accommodation places an undue financial or administrative burden on the owner. CAA has heard from many of its members that their insurance companies are requiring breed restrictions, and, therefore, they cannot grant the accommodation requests for pit bulls and other such breeds. Several years ago, HUD issued a policy statement on dangerous breeds and insurance. This document provides information to HUD’s investigators on how to view a landlord’s defense of undue burden due to the insurance breed restriction issue. Essentially, HUD does consider that a valid defense, as described in the memo at this link: http://1.usa.gov/1jW4XqF.
Some attorneys have had some success with getting insurance companies to make an exception to the breed restriction when the animal is a service or companion animal for a disabled person. The argument is that insurance companies also have fair housing obligations. The California Department of Fair Employment and Housing is currently working on fair housing regulations that may address this issue.
8. What if the tenant wants more than one companion animal?
If more than one animal is necessary, then it may be a reasonable accommodation. An owner may not have hard-and-fast rules about how many animals are allowed. As with any other accommodation, the landlord may request from the verifier a description of the needed accommodation and information that shows the relationship between the person’s disability and the need for the requested accommodation.
9. Can I require the tenant to follow standard pet rules, such as requiring a dog to be on a leash, to be licensed by the county and to be current with vaccinations?
While you may set reasonable rules for the disabled tenant and assistive animals, these would be specific to the particular situation, rather than one-size-fits-all pet rules. For example, depending on the dog’s function, it may be not able to assist the tenant if it is on a leash. Also, assistance animals should be able to accompany the resident to all areas of the property, including the pool area (but not into pools and spas). These rules should be developed in consultation with an experienced fair housing attorney. If the animal has behavioral problems, the resident should be given a reasonable time to come into compliance with the rules. Consult your attorney prior to taking legal action.
10. Can I require the tenant to get insurance? Or ask for an additional deposit?
No. According to HUD, housing providers may not require persons with disabilities to pay extra fees or deposits, or obtain insurance as a condition of receiving a reasonable accommodation.
11. If the tenant’s request seems unreasonable, can I just say “no?”
No. A request is unreasonable if it (1) imposes an undue financial or administrative burden on the landlord; (2) would fundamentally alter the nature of the operation; or, (3) creates unreasonable health and safety risks. In those situations, you are required to negotiate with the tenant to come up with an alternative accommodation. Failure to engage in this “interactive process” can result in liability, even if the requested accommodation is completely unreasonable. Do not deny a request without consulting with your attorney.
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12. Security Deposits
According to a Joint Statement issued by the Department of Housing and Urban Development and the Department of Justice on May 14, 2004, a housing provider may not require an applicant or tenant to pay a fee or a security deposit as a condition of allowing the applicant to keep the assistance animal. However, if a tenant’s assistance animal causes damage to the applicant’s unit or the common areas of the dwelling, the housing provider may charge the tenant for the cost of repairing the damage (or deduct it from the standard security deposit imposed on all tenants), if it is the provider’s practice to assess tenants for any damage they cause to the premises.
VII
CONCLUSION
There are several lessons to be learned from the laws and decisions when it comes to accommodating a tenant with an animal. (1) Don’t ask the tenant about their disability. (2) If a tenant requests an animal as an accommodation for their disability, ask how you, as the property owner, can be sure that it is a service animal and not just a pet, so that other tenants don’t feel unfairly treated. (3) Ask tenants who make a request, to put the request and any information regarding the animal in writing. Keep these documents on file. (4) If you are skeptical about tenant’s disability, or whether the animal really helps the tenant, consult an attorney familiar with fair housing laws. (5) Don’t require the applicant or tenant to pay a fee or a security deposit as a condition of allowing the applicant to keep the assistance animal.
For more information about providing reasonable accommodations:
● HUD/DOJ Joint Statement on Reasonable Accommodations: http://1.usa.gov/1nkGLgV
● HUD Notice on Service Animals and Assistance Animals: http://1.usa.gov/1sTBeSj
● CAA Fair Housing Encyclopedia (Kimball, Tirey & St. John LLP). To purchase click here.
● CAA Forms Packet 60.0 – Assistive Animal Verification and Documentation
● CAA Form 60.1 – Assistive Animal Addendum
Note: Always get legal advice if you aren’t sure how to handle a disabled applicant’s or tenant’s request. Failure to promptly respond, or to negotiate with the tenant can result in liability. In addition, granting a request for an animal that is not required by law may create difficulties with other residents.

Due Diligence – What Is Important When Buying Real Estate?

When you make a big purchase, or an investment, buy a car, sign up for healthcare, etc. you do you “homework” to hopefully make a sensible decision that gives you good value for the money you are spending.

When you buy real estate, which is likely to be the most expensive, most complex, and riskiest purchase you will ever make, there is an extraordinary amount of due diligence that you should do to reduce your risk and make a smart decision. It’s a time consuming, laborious, and expensive process of which most buyers fail to understand and complete. Most don’t even know many of the steps, or they don’t understand the time and cost required to perform the tasks, steps, procedures, analysis, review, etc. To give you a feel for it, here are the main steps in buying income producing property.

Pencil out your deal. In order to determine whether or not you are buying a fair deal, you must pencil out, or pro-forma, your particular deal. This involves investing rents, expenses, vacancy, financing costs, current leases, capital reserves and replacements and inputting those figures into your pro-forma. And you need to do your own research and use good numbers because if you take the seller’s figures, you’re going to find out quickly their numbers were probably overly optimistic. You might need a C.P.A. or financial advisor to help you.

Financing your property. You must also take the time to get qualified and procure several bids to secure the best financing for their property. Understanding the costs and terms involved in a financing agreement, and how those clauses could impact your investment returns and future financing options on the property is a must. Just accepting the loan documents, without your and/or your attorney’s review, is not prudent practice.

Title Issues, Site and Title Insurance. Title issues, at least expensive ones, are rare. But that doesn’t mean you don’t have to do all the needed review, maybe with an attorney, on every single purchase – because you do. You will have a title insurance policy to review, plus an abstract of title that could list easements, restrictions on use, and a schedule of exclusions related to the title insurance. Reviewing all of these, probably with an attorney, is an absolute necessity. And you probably have to have a survey done to see if there are any encumbrances on the property. You don’t want to discover an issue after you’ve closed escrow.

Property Inspection and Rehabilitation. You will also need to have a professional building inspector review the property and do a report of all the issues. Then have several different contractors to come bid on the work that is needed to get it into the condition that makes sense for your ownership and rental operation. These need to be done within the tight timeframe of your inspection period so you can terminate the contract if you find issues and the costs of renovation are prohibitive.

Dwelling and liability insurance policy. During your inspection period you should also get some bids for properly insurance your real estate. Sometimes there are insurance issues, and you may not be able to obtain a policy or the premiums may be unaffordable. For standard properties in decent areas, like apartments, it should be relatively straightforward and easy. But if you add in fire prone, flood prone, hurricane or high property crime areas, you might find a little more trouble obtaining a reasonably priced policy. Make sure to get some premium estimates early in the due diligence process.

Partnership, LLC, tax and ownership issues. If you are buying with other partners, or raising capital for the purchase, there are a myriad of legal partnership, LLC, and tax issues that need to be reviewed with a professional before your purchase. You need to set up the entity structure and tax items before you close escrow so all investors and partners are satisfied with the agreement.

Those are the main due diligence issues for an already built and operating income producing property. There are many other tasks and procedures depending on the circumstances of your purchase. So talk to your real estate broker, lawyer, C.P.A., escrow agent, title officer and others involved in your purchase for other items that need to be considered. And make sure educate yourself well before the process begins and give yourself enough time to do a good job of completing all these tasks.

Leonard Baron is America’s Real Estate Professor – his unbiased, neutral and inexpensive “Real Estate Ownership, Investment and Due Diligence 101” textbook teaches real estate buyers how to make smart and safe purchase decisions. He is a San Diego State University Lecturer, blogs at Zillow.com, and loves kicking the tires of a good piece of dirt! More at ProfessorBaron.com.

Posted on 08. Aug, 2013 by in Real Estate

The Mortgage Market Is About To Get Smaller

As 2014 begins a bureau created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, The Consumer Financial Protection Bureau (CFPB), will set new rules concerning mortgages. Lenders will be required to verify and inspect borrowers’ financial records. The rules discourage lenders from allowing borrowers to carry total debt payments totaling more than 43 percent of the person’s annual income.

That debt also includes existing debts like credit cards and student loans. Starting January 10th the CFPB will put into force a national standard for issuing mortgages that could help prevent the housing crash of 2008 and 2009. Earlier in 2013 CFPB director Richard Cordray called the new rules “the true essence of ‘responsible lending.”

All kinds of consumer advocates and mortgage professionals are lauding the new CFPB requirements. The new rules not only provide more responsibility for lenders, but it also protects them from lawsuits. “Lenders are going to be crossing their t’s and dotting their i’s like never before” said Bob Walters, the chief economist for Quicken Loans.

On the downside, there will be a big number of people who should have been able to qualify for mortgages that won’t be able to and will be shut out of the home-buying market. If you add to that the fact that mortgage rates have risen in the past 6 month and are predicted to gradually move up to the mid 5 percent range by the end of 2014, you can see that the mortgage market will be shrinking.

Others have commented that there’s a good chance that limits on the size of some popular mortgages will be lowered during 2014. CFPB director Corday noted that in the years leading up to the 2008 financial crisis, consumers could easily obtain mortgages that they could not afford to repay. In contrast, in subsequent years banks tightened lending so much that few could qualify for a home loan.

The new rules seek out a middle ground by protecting consumers from bad loans while giving banks the legal assurances they need to increase lending, he said in a press conference at the start of 2013. The new rules will limit offers like teaser rates that adjust upwards and large “balloon payments” that must be made at the end of the loan period.

They include several exceptions aimed at ensuring a smooth phase-in and protecting access to credit for underserved groups. For example, the strict cap on how much debt consumers may take on will not apply immediately. Loans that meet separate federal standards also would be permitted for the first seven years.

Balloon payments would be allowed for certain small lenders that operate in rural or underserved communities, because other loans may not be available in those areas. The bureau also proposed amendments that would exempt from the rules some loans made by community banks, credit unions and nonprofit lenders that work with low- and moderate-income consumers.

You can learn more about the details that the CFPB’s website which is a great source of information on new laws that govern the use of credit and consumer rights. Property managers, here’s an idea for you. Why not send a link to this article to your owner-clients and your prospective client list as a “heads-up” for the year ahead.

As I often like to remind us, being a font of information and the latest insights can separate you from your peers, leading to more referrals and a bigger book of business. On second thought, if you send this article to your owner-clients and your prospective client list, maybe it would be more prudent to copy and paste sections and leave off the last 3 paragraphs.

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Audrey Wardwell, Broker/Owner
36 North Properties, Inc
CalBRE: 01746254
www.36northpm.com
p: 831-320-7116
f: 831-309-5584

Posted on 27. Feb, 2014 by in Business

Why You Should Not Use Excel For Accounting

First, let me confess that I love Excel. Having used Excel for years, I’m fully aware of its strengths, and will continue to use it to create spreadsheets, graphs, and tables. But for some unknown reason, there is a small group of property managers that continue to extol the benefits of using Excel as their primary accounting software.

I have to admit that this has me stumped. The accounting software of today in no way resembles the awkward software of yesterday. Today, most software products are designed with the end-user in mind, and include easy system navigation, intuitive data entry screens, and system tutorials to make it easy to learn your way around the system.

If you’re using Excel to run your property management business, you may want to consider the following:

Excel’s Primary Functionality is NOT Accounting – Excel’s primary function is creating spreadsheets, not processing transactions, or producing financial statements. Yes, it can be used for those things, but typically with accounting software; not in place of it. As a result, users will spend an inordinate number of hours entering Excel data manually, because it does not have the capability to share data. So anytime your tenant pays rent, you’ll be posting that payment in your checkbook, your accounts receivable journal, and your tenant record. With regular accounting software, you post it once.

Propensity for Errors Increases – The lack of a central database and no double entry accounting system in Excel also means a lot more repetitive data entry. And each time you have to re-enter the same data, the likelihood of making an error increases dramatically. Also consider that without the safeguard of a double entry accounting system, it’s very easy to end up with out of balance accounts.

Lack of a Reliable Audit Trail – Accounting software has become valuable to business owners because of the ability to ensure that data is accurate and secure. Excel offers no such protection; meaning that formulas can be changed, entries accidentally (or purposely) deleted, and transactions erased, all without leaving a trace of the original entry behind.

Ease of Use – or Lack Thereof – While it’s fairly simple to create spreadsheets in Excel, making it a functioning accounting program requires another level of skill that most Excel users will never attain. Creating an invoice, printing a statement, or processing a financial statement in Excel can take up valuable time, while accounting software allows you to create those items in minutes.

While Excel will continue to provide a valuable benefit to property managers, it can provide many more benefits and less headaches by using it for what it was designed to be.

Audrey Wardwell, Broker/Owner
36 North Properties, Inc
CalBRE: 01746254
www.36northpm.com
p: 831-320-7116
f: 831-309-5584

 

 

 

 

Posted on 19. Feb, 2014 by in Business

Put it in Writing

Put it in WritingOften, when renting an apartment, tenants are overwhelmed by the amount of information they are given, from the initial apartment viewing, to filling out the application, to getting approved, to finally, moving in.  While it’s important to let all prospective residents know and understand the rules they must abide by when moving into their new apartment home, it’s even more important that the rules and regulations be put into writing.

While standard information such as lease term, rental amount, and deposit information is almost always included in every lease, it’s important that other items are written into the lease as well.  It’s also a good idea to mention these items to residents so that they are aware that they are there.  After all, most tenants do not read their lease from beginning to end.

Here are some things that property managers should ensure are included in every lease and mentioned to each tenant as well:

  • Rental due date.  While most leases will stipulate that rent is due the first of each month, most  management companies will offer a grace period of a few days.  If rent is considered LATE on the 1st, put it in the lease, likewise if the late period starts on the 3rd.
  • The penalty for late rent.  This needs to be spelled out as well.  Tenants must be informed what the penalties will be if the rent is late, and if extenuating circumstances will ever apply.
  • What utilities, if any, are included in the monthly rent.  If gas is included in the monthly rent, state that in the lease.  Likewise, if the tenant is responsible for electric, that should be stated in the lease as well.
  • Apartment alterations.  This can be a sticky area, and one most likely to be abused.  If tenants are required to get permission from management prior to making ANY alterations to the unit, it must be spelled out in the lease.  This includes anything from painting the walls, to installing a ceiling fan.  If this is not spelled out in the lease, tenants cannot be penalized for any property alterations found upon move-out.
  • Authorized landlord entry.  Another sticky area.  Years ago, when I rented a house, the owner of the house thought nothing of using her key to enter the property, clip roses in the backyard, and complain to me about the unwashed dishes in the sink.  Only legal action could keep her out.  While landlords are perfectly within their rights to enter a property during an emergency situation, 24 hour notice is typically required to enter any other time.  It would be in your best interests to put this in the lease.  And obey it.
  • Pet policy.  If your property doesn’t allow pets, put it in the lease.  If you do accept pets, layout any restrictions (dogs under 25 pounds), and any pet deposits required.  Also be sure to note whether the deposit is refundable upon moveout.

By providing your tenants with a comprehensive, in-depth lease, you can avoid any misunderstandings and possible legal issues later.

Posted on 10. Jul, 2014 by in Articles, Business