This Week: Transfer Taxes; The Seventh Commissioner; Short Sales

Transfer Taxes Increase Again

Despite the sluggish real estate market, on November 2 the voters enacted another real estate transfer tax increase by approving Measure N. This increase was limited to transactions that involve a purchase price of $5,000,000 or more. Below is a summary of the existing and new transfer tax rates. The increases will be effective 10 days after the Board of Supervisors certifies the November election, which is expected to occur in early December 2010.

Sales price     Old rate     Current rate      New rate

< $250k            0.50%      0.50%              0.50%

$250k – $1M      0.68%       0.68%              0.68%
$1M – $5M         0.75%       0.75%              0.75%
$5M – $10M       0.75%       1.50%              2.00%
$10M+              0.75%       1.50%              2.50%

As a reminder, transfer taxes also apply to long term leases (35 years or more). There are exceptions for foreclosures and transactions that do not involve a change of beneficial ownership. Please contact Kevin Rose if you have questions about transfer taxes.

Planning Commission Nominee Fong Faces Questions, Support at Board Subcommittee

Yesterday, the Board of Supervisors Rules Committee held a public hearing on Port Commission President Rodney Fong’s nomination to fill the vacant seat on the Planning Commission. The hearing began with several minutes of questioning by Supervisor Campos. The Supervisor’s main concern was that Mr. Fong’s competence and leadership would be sorely missed on the Port Commission at a time when a number of important projects, including the possible hosting of the America’s Cup, are being implemented. Campos questioned Mr. Fong on whether his background made him a good fit for the Planning Commission. Mr. Fong responded to many of these questions by citing his experience in the real estate industry and on the Port Commission. Specifically, Mr. Fong cited his work on the Fisherman’s Wharf Public Realm plan, currently working its way through the Planning Department.

In response to a question from Mr. Campos on whether he would have to recuse himself on any cases that may be before the Planning Commission, Mr. Fong said he may only have to do so on less than “two handfuls” of cases. Local ethics law requires Planning Commissioners to recuse themselves from cases involving property within 500 feet of a property they have some economic interest in.

A number of members of the public spoke effusively in support of Mr. Fong’s nomination, including Planning Commission President Ron Miguel, Redevelopment Commission President Rick Swig, San Francisco Bicycle Coalition Acting Director Renee Rivera, San Francisco Housing Action Coalition Director Tim Colen, San Francisco Convention and Visitors Bureau President Joe D’Alessandro, and San Francisco Chamber of Commerce Senior Vice President Jim Lazarus. Port Director Monique Moyer testified that she would only be happy if Mr. Fong went to one of two places: the Planning Commission or the Board of Supervisors.

In the end, Supervisor Alioto-Pier made a motion to recommend approval of Mr. Fong’s nomination to the full Board of Supervisors. While saying he was “still open to this nomination,” Supervisor Campos was not yet ready to vote to recommend the nomination. Since there were only two members of the Committee present, Alito-Pier and Campos agreed to send Mr. Fong’s nomination to the full Board without a recommendation in support or in opposition.

Mr. Fong’s nomination is scheduled to be heard at the Board of Supervisors’ hearing next Tuesday, November 23.

Short Sale Protections Confirmed for Home Owners

A new bill signed by the Governor in September makes state law consistent with most people’s expectations when they dispose of their home by a “short sale.” A short sale occurs when a homeowner sells his or her property for less than the amount owed on the existing deed of trust, with the lender’s consent. Previously, there was no law that prevented the lender from pursuing the balance of the loan, since the lender had not initiated a foreclosure. Although such lawsuits were rare, the risk of liability remained. New Code of Civil Procedure Section 580e now specifically precludes such lawsuits by the first lender, so long as (1) the property is a dwelling of not more than four units, and (2) the lender’s written consent was given. The statute specifically reserves the lender’s right to pursue an action for fraud or waste by the borrower, and does not preclude lawsuits by secondary lenders.

Borrowers should be aware of the income tax consequences of a short sale. While most residential short sales or foreclosures are excluded from the typical state and federal income tax rules that make forgiven debt taxable, there are limitations. For example, the foreclosed property must be the taxpayer’s principle residence, the debt must be for the acquisition (not a refinance), and the dollar amount of the exclusion is limited. Qualified tax professionals should be consulted before finalizing a short sale or using a foreclosure as a business strategy.

Please contact Kevin Rose if you have questions about this amendment for short sales or any other foreclosure related matters.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Copyright 2010 Reuben & Junius, LLP. All rights reserved.