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December 2011 | May 2012 | July 2012  | October 2012     

The Morton Memo - December 2012

Our articles give food for thought for the end of this year and beginning of the new. 
The first concerns new real estate laws that will be in effect in 2013. The second concerns the challenges of forming and operating a non-profit and tax exempt entity.  
We hope that 2012 was a prosperous year for clients, friends and colleagues.  We wish everyone a happy and even better 2013.
The Morton Memo is for you, so kindly email me those topics of interest to you.

>> New real estate laws for 2013  

>> So, you want to be a non-profit?

New real estate laws for 2013

By Michael H. Ritter

Gavel and House

Several new laws go into effect beginning in 2013 that impact real estate.  We are highlighting three that are relevant to our clients:

1.   New Anti-Deficiency Protection for Refinance Loans Made After January 1, 2013

Starting January 1, 2013, a new California law will protect homeowners who default on their refinance loans from personal liability for any deficiency following foreclosure. Prior law allowed a lender to recover losses upon foreclosure when the borrower had refinanced the loan. Senate Bill 1069 extends the anti-deficiency protection to include any loan used to refinance the purchase money loan, plus any loan fees, costs, and related expenses for the refinance. The anti-deficiency protection, however, does not extend to any "cash out" in a refinance, which is when the lender advances new principal not applied to any obligation owed under the purchase money loan. This new law does not affect the other anti-deficiency protections for non-judicial foreclosures (or trustee's sales) and seller financing.

This new law only applies to refinance loans or other credit transactions used to refinance a purchase money loan, or subsequent refinances of a purchase money loan, that are executed on or after January 1, 2013. For purposes of this law, any payment of principal shall be deemed to be applied first to the principal balance of the purchase money loan, and then to the principal balance of any new advance and interest payments shall be applied to any interest due and owing.

This continues a trend in the law to help protect mortgage loan borrowers as the national housing crisis continues.

 2.   Tenant Entitled to a 90-Day Notice to Terminate After Foreclosure

Effective January 1, 2013, a month-to-month tenant in possession of a rental housing unit at the time the property is foreclosed must be given a 90-day written notice to terminate under California law. For a fixed-term residential lease, the tenant can generally remain until the end of the lease term, and all rights and obligations under the lease shall survive foreclosure, including the tenant’s obligation to pay rent. However, the landlord can give a 90-day written notice to terminate a fixed-term lease after foreclosure under any of the following four circumstances: (1) the purchaser or successor-in-interest will occupy the property as a primary residence; (2) the tenant is the borrower or the borrower’s child, spouse, or parent; (3) the lease was not the result of an arms’ length transaction; or (4) the lease requires rent that is substantially below fair market rent (except if under rent control or government subsidy). The purchaser or successor-in-interest bears the burden of proving that one of the four exceptions has been met. This law does not apply if a borrower stays in the property as a tenant, subtenant, or occupant, or if the property is subject to just cause rent control.

These changes significantly impact tenant’s rights and will impact the re-sale value of foreclosed properties.

3.   Landlord Must Disclose Notice of Default to Prospective Tenants

Starting January 1, 2013, landlords who offer for rent a residential property containing one-to-four units must disclose in writing to any prospective tenant the receipt of a notice of default that has not been rescinded. This disclosure must be made before executing a lease agreement. Violations of the law allow the tenant to elect to void the lease and recover one month’s rent or twice the amount of actual damages, whichever is greater, plus all prepaid rent. If the lease is not voided and the foreclosure sale has not occurred, the tenant may deduct one month’s rent from future amounts owed. The written disclosure notice as provided by statute must be in English, Spanish, Chinese, Tagalog, Vietnamese, and Korean. A property manager will not be held liable for failing to provide the written disclosure notice unless the landlord has given the property manager written instructions to deliver the written disclosure to the tenant.

This is another law designed to protect tenants.  Landlords should take extra care in providing proper disclosure especially when working with property managers.

 If you would like amore information about real estate, please contact us at at info@ericmortonlaw.com or (760) 722-6582. 

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so, you want to START non-profit?Volunteer with box

By Kellie M. Delaney

More and more frequently, I am approached by potential clients or acquaintances who are interested in starting a nonprofit organization.  All of them have worthy goals, a story behind their mission, and a genuine desire to bring their vision to life.  Most people, when they first think about a “nonprofit”, are thinking about a 501(c)(3) organization, because 501(c)(3) is the tax-exempt status that may be granted by the Internal Revenue Service to organizations who qualify.  There are, of course, other types of nonprofits, including private foundations, schools, churches, and so on. 

                First, some basic distinctions.  It’s a simple process to create a “nonprofit” entity in California, provided the organizing document includes specific language about the organization’s purpose and the dedication of its assets to be perpetually used for nonprofit activities.  This is generally the first step, since most nonprofits are created as nonprofit corporations.  And, you can exist indefinitely as a nonprofit entity without taking other steps to file for exempt status with the state of California Franchise Tax Board or the Internal Revenue Service.  But a “nonprofit” entity that wants to actually solicit donations and assure its donors that those donations are fully tax-deductible as gifts to charities cannot do so until the entity has applied for, and received, a 501(c)(3) exemption letter from the IRS.

               Second, applying for that exemption is the more difficult task.  Why?  Because the IRS Form 1023 requires some fairly extensive data points and narratives to describe what you’re doing, how you’re doing it, who’s involved, and the source of your current or anticipated donations.  It is a pro forma task to obtain tax-exempt status from the state of California after you have tax-exempt status from the IRS but there are other requirements to be aware of, such as registering with the California Attorney General’s Registry of Charitable Trusts.

               Often times, organizations that have a nonprofit purpose start their existence as an entity that does not have its own 501(c)(3) tax-exempt status.  Instead, the organization partners with some other established nonprofit that has a similar or related mission, who is willing to serve as a “fiscal sponsor” on a temporary or long-term basis.  In general, if your entity’s projects or work furthers the mission of your fiscal sponsor, you are then eligible to apply for grant funding through the fiscal sponsor.  The sponsor often charges a fee for administrative costs (typically 5-10% of the grants or donations) because the fiscal sponsor has an obligation to ensure that any funds are properly spent, and must account for any funds raised for the sponsored organization on its own tax returns (Form 990).  A fiscal sponsor may also want to have some control or oversight over your activities.

                “Do you have a business plan?” is the first question I usually ask anyone who contacts me about starting a nonprofit and applying for tax-exempt status.  If the answer is yes, and the business plan is relatively detailed, chances are you will be able to assess that plan in light of the IRS’s strict requirements and determine whether having tax-exempt status will really serve your goals and, if so, how much homework you have left to do before you can successfully obtain tax exempt status from the IRS.  If you would like more information about the process, you may want to check out the many resources on the IRS website to educate yourself, at http://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations. Or, give us a call to discuss.  The objective, if you do seek tax-exempt status from the IRS, is to get it right when you initially you apply, so you are approved in the first level review.  Failure to do this can result in delays that are frustrating, costly, and may delay your ability to execute on your vision to make a difference. 

 If you would like amore information about non-profits, please contact us at at info@ericmortonlaw.com or (760) 722-6582.

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