DON’T MESS WITH NAR!

Over the years many persons including licensed real estate agents and brokers have sought to incorporate the word “REALTOR” into their domain name.  The National Association of Realtors® (NAR) is very protective of its trademarked term of “REALTOR”.

Recently a couple registered various domain names containing the term “REALTOR” in the name.  Some examples were <realtoreview.com>, <realtorranking.net> and <realtorreportcard.net>.  All of the subject domain names in question were in turn linked to the registrants’ website that was called “REALTOR REVIEW®.”

NAR has a number of trademark registrations related to the REALTOR mark (the blue square with a gold “R” inside of it) and owns various domain names such as <realtor.com> and <realtor.org>.  In turn, NAR grants a limited license to its members to use the REALTOR® mark subject to certain restrictions.

NAR, upon learning of the attempted registration of the poaching domain names filed an application with the United States Patent & Trademark Office (USPTO) seeking denial of the Registrants’ application.  NAR also filed a complaint with the World Intellectual Property Organization (WIPO) claiming Registrants’ application was submitted in bad faith and sought the right to have the Registrants’ proposed names turned over to NAR as its property.

The Internet Corporation for Assigned names and Numbers (ICANN) is responsible for the management of certain domain names such as .com and .org.  ICANN appointed WIPO as the body to resolve disputes such as the one in question.

WIPO ruled that NAR had met all the requirements for the transfer of the domain names and ordered the disputed trade names be turned over to NAR.  NAR sufficiently demonstrated that the Registrants did not have a legitimate right or interest to use the domain names.  They were not members of NAR and did not have a license to use the term REALTOR.  They also created a false impression by including the “®” symbol on their website page when in fact USPTO had previously rejected their attempt to register the mark.  Therefore it ruled the Registrants had acted in bad faith.  

As a result the panel ordered that all sixteen (16) domain names in dispute be turned over to NAR.  The moral is “don’t abuse the word REALTOR”.  NAR is very, very protective of its valuable property right in that word and mark.

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Funding for Maintenance Projects in Homeowners Associations

Many homeowners association Boards find themselves in the difficult position of needing a large sum of money for maintenance projects that can no longer be deferred; such as roof replacement, exterior painting, or street replacement.  Ideally, the Association has been building reserves to pay for such projects.  However, there is no law in Arizona that addresses the obligation to fund reserves or the amount of reserves that should be accumulated.   One strategy that many Boards use for planning purposes is to commission a reserve study.   Reserve studies are an analysis of all of the Association maintenance obligations with a projection of needed funds over the ensuing 10 years or more.  This analysis can be done by a professional or by an internal long range planning budget if the maintenance obligations are few and uncomplicated.
If there are not adequate reserves for needed maintenance and replacement of common areas, the Board has three options:

  1. to defer or stagger the maintenance projects while increasing the regular assessment to accumulate funds;
  2. to levy a special assessment;
  3. to borrow the needed funding.

Option #1 may not be feasible if there already has been deferring of maintenance and there are immediate needs for major maintenance, like roof replacement or street repair.  As for special assessments, the Board must follow the procedure in the Declaration of Covenants, Conditions and Restrictions (CC&Rs) and, hopefully, get the Association members to approve the assessment and to pay the assessment when due.  Many CC&Rs have a provision requiring the special assessment to be levied and spent in the same fiscal year.  Another common provision is to require a quorum of 60% for the member vote on special assessments, with approval needed from 2/3rds of the participating voters.  If the quorum is not met, another meeting can be held where the quorum will be only 30% of the members.  In any event, special assessments are never welcome and often bring normally inattentive members to meetings to discover why the special assessment is required and to encourage (or demand) avoiding or minimizing the assessment.

If the members will not pass a special assessment, the Board can consider a bank loan to fund the needed repair or improvement projects.   Generally, the collateral for the loan will be an assignment of the Association’s right to collect assessments.    From a legal standpoint, there are several considerations for the Board to make.

The first inquiry for the Board is whether or not the members’ approval is needed before a loan can be procured.   There may be a provision in the CC&Rs or Bylaws that requires member approval before the Board can borrow money.   Repayment of the loan may require an increase in regular assessments, which may require the approval of the members.  And, if the community is a condominium, Section 33-1242(A)(14) of the Arizona Condominium Act specifically authorizes the Association to assign its right to future income, including the right to receive assessments from its members.  However, this statute states that this assignment for collateral can be made “only to the extent the [CC&Rs] expressly provides. “  If the CC&Rs do not have this authorization, an amendment approved by the members will be required to proceed with a loan.  It is more likely that such an amendment will be approved by the members if it states that a member vote is required before the assignment can be made.

If an association is not a condominium and the Board has no constraints on its proceeding to commit to a loan, it is still important to inform the members of the prospective loan and how it will be repaid before proceeding.   Oftentimes, a Board will have discussed the prospective loan in several Board meetings and in newsletters.   Nevertheless, since many members don’t attend meetings or pay a lot of attention to the operations of their homeowners association, it is important for the Board to send a letter or offer a specific newsletter article or website posting with full information about the loan and maintenance plan, even if member approval is not required for any facet of the loan transaction.

In conclusion, the worst case scenario would be critical maintenance needs and members’ refusal to increase the annual assessment, approve a special assessment and/or approve the loan or collateralization for the loan.    At this point, the Association’s Board would have to file a court action to seek a Judge’s order for an assessment levy or loan approval.   In my 26 years of HOA legal representation, I have never seen a funding issue get to this point and hopefully I never will!

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Loan Originators Now Required for Residential Financing Except…

More of Mortgage Reform in 2014

The Consumer Financial Protection Bureau (CFPB) issued new rules as a part of the Truth in Lending Act (TILA) and the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE). The rules became effective in January and impact loans on real property with residential dwellings of one to four units. The rules are not limited to first liens or primary residences, but do not extend to time-shares and some of the provisions do not apply to home equity open credit loans (HELOCs).

A “Loan Originator” is an individual or organization that, for compensation or other monetary gain, performs services in connection with a loan, including: taking an application, assisting a consumer in applying, offering or negotiating terms, extending credit, advertising such services to the public or even referring a consumer to a lender. Licensed real estate brokers are not considered Loan Originators for providing real estate brokerage services, as long as they are not compensated by a Loan Originator or lender (except for the payment of the real estate commissions on behalf of the consumer). However, real estate brokers must ensure they do not cross the line into providing services in connection with a loan. Independent advisory services such as accountants, attorneys, financial advisors and HUD- approved house counselors are also generally excluded, as well as those involved with renegotiating or modifying an existing mortgage.

Loan Originators must comply with state laws for qualification and must ensure their employees are fully screened, qualified and trained. Loan Originators must properly identify themselves in loan documents and are prohibited from financial incentives that historically were used to steer consumers to less advantageous loans. Compensation cannot be based on the interest rate or such terms as whether the loan has a prepayment penalty or the consumer uses the lender’s affiliate for title insurance. However, the compensation can vary based on the amount of the loan. Even though a lender may change terms or pricing to compete for a loan, if a Loan Originator similarly reduces his or her compensation, it may trigger the requirements and penalties for high-priced mortgages. For audit and enforcement purposes, Loan Originators must maintain all agreements for and records of compensation for three years. Lenders also must maintain agreements for and records of compensation to Loan Originators for three years.

Thanks to the lobbying efforts of the National Association of Realtors to save seller financing, there are two exceptions to the onerous new requirements for using Loan Originators: (1) Sellers financing one property in 12 months and (2) Sellers financing three or fewer properties in 12 months.

The One-Property in 12 months exclusion is available only to sellers who are natural persons, estates or trusts – no limited liability companies (LLC) or corporations – which eliminates many investors from this exclusion. The seller must have owned the property being financed and not have constructed it in the ordinary course of business, which eliminates spec houses. Finally, the loans must be fixed rates or an adjustable rate that is “reasonable” and won’t reset for at least five years and cannot include negative amortization. Balloon payment loans currently are permitted.

The Three-Property in 12 months exclusion is available to any seller, including an LLC or corporation, who owned the properties being financed and not have constructed it in the ordinary course of business. These loans must be fixed rates or an adjustable rate that is “reasonable” and won’t reset for at least five years and must be fully amortized. However, those taking advantage of this exclusion from using a qualified Loan Originator must comply with the Ability to Repay rules, evaluating the eight factors for a good faith determination that the consumer has a reasonable ability to repay the loan. (See February’s Newsletter.)

The penalties for violation of the Loan Originator regulations can be quite severe. In a suit filed by the CFPB against a mortgage company in July 2013, before the more stringent new rules became effective, the relief sought included restitution for consumers who were upsold on loans and monetary penalties for each bonus paid to a Loan Originator. The Dodd-Frank Act permits civil penalties of up to $5,000.00 for each violation; and for class actions, up to $1,000,000.00 or 1% of the lender’s net worth. Consumers can sue violators directly for damages, including all fees and finance charges paid.

Thus, while the exclusions to Loan Originator regulations facilitate seller carrybacks, real estate brokers will need to be familiar with these regulations to guide their sellers away from unlawful transactions without unwittingly coming within the definition of a Loan Originator themselves.

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Vacant Land or New Construction and the Anti-Deficiency Statute

In January of this year, in BMO Harris Bank v. Wildwood Creek Ranch, LLC, Division One of the Court of Appeals ruled that Arizona’s anti-deficiency law does not apply to vacant land, even if the owner intends to build a dwelling on the land which would otherwise qualify for the protection of the anti-deficiency statute.

In its ruling, the Court distinguished its prior ruling in M & I Marshall & Ilsley Bank v. Mueller from 2011, where the Court of Appeals had ruled that the anti-deficiency statute did apply to a dwelling under construction, where the trustee’s sale occurred after construction had been abandoned. In Mueller, the Court found that the intent of Mueller to occupy the dwelling upon completion brought the transaction within the scope of the anti-deficiency statute, but because no construction had begun in the new case, the protection of the anti-deficiency statute was not available.

Whether you or a client can qualify for the protection of Arizona’s anti-deficiency statute is a fact-intensive question which is best answered after a consultation with an attorney well versed in real property law.

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Be on the lookout – an anatomy of a scam

Now it’s the Chinese!  Before that it was the Japanese.  Before that, the English.  The scam is an enticing one at first glance for real estate agents and then for an unwitting attorney.

Your day starts out normal at the real estate office.  Then you receive an e-mail from China.  The sender identifies himself and indicates that he has noticed your listing for that expensive home in the foothills.  The sender is interested in purchasing the property since he is coming to live in Tucson and is willing to acquire the property sight unseen.  Not only is he willing to consider paying full price since he is so very interested in just that property but he will pay all cash and needs a quick closing – of course.  So draw up the purchase agreement now and get it to the buyer.  The quicker the better!  Wow! What a deal –the commission – both sides – will be $32,000.00!!  Let’s get it on, right!?!?

The sender then indicates that since he is from China and not that familiar with the process of acquiring property in the United States he would want a local attorney to work with him.  Do you have any recommendations for an attorney who can assist him in buying the property?  Why of course you do!  You may even give him three such names and their e-mail addresses!

The party then e-mails one of the attorneys and indicates his desire to acquire the property in question from you, the agent.  He requests the attorney contact the agent and begin representing him if that is appropriate and asks what the attorney fee will be.  Naturally the attorney jumps in and responds as to what the fee will be.  The client quickly responds – “No problem!”  The trap is now beginning to be set.

The buyer then indicates to the attorney that the terms will be ‘all cash’ and as to the attorney fee – no problem.  Buyer indicates to the attorney to contact the real estate agent to get a copy of the contract.  The attorney does.  Buyer also indicates that he is not familiar with working with escrow companies so he wants to be protected so he will send all of the funds, including the attorney fees, to the attorney to put into his/her trust account for later disbursement as appropriate.  It couldn’t be simpler.  The ‘standard’ AAR contract, all cash and a quick closing. 

Then the e-mail comes indicating the buyer will send certified funds.  In fact the buyer is going to send excess funds of $25,000 to be deposited into the trust account that the buyer wants transferred to a third party.  Sure enough a certified funds check arrives at the attorney’s office and it is immediately deposited into the attorney trust account.  Immediately following that an e-mail arrives from the buyer indicating that he sent in excess funds which he needs transferred to a third party as part of the transaction.  So says the buyer – If you, the attorney, would please take your full fee now, even though the real estate deal is not yet completed and send a check for the excess funds of $25,000 to his correspondent bank in Canada then the balance of the funds can be transferred to the escrow company and all will be fine – right!!!  You probably see where the scam is already.

If the attorney follows those instructions then the attorney just dug himself or herself into a very deep hole and might as well pull the dirt in after.  The check for certified funds is duly returned from the attorney’s bank indicating that the certified funds check is a fraudulent check.  Yes, it certainly looked exactly like a cashier’s check.  If the attorney falls into the trap, the attorney wrote a check out of their trust account for their fee and wire transferred a $25,000 check to the appointed bank in Canada or wherever and the balance of the funds got transferred to the escrow account with the escrow company named in the purchase agreement.

About a week later when the attorney is notified that the cashier check was bogus and did not “clear” the attorney realizes that he or she has been ‘had’.  By that time it is too late.  The $25,000.00 came out of the attorney’s trust account which drew upon other client’s money in the trust account and was sent to the “buyers” account in Canada which the buyer immediately withdraws and is long gone.

At that point the attorney is responsible for the lost funds in his or her trust account and must immediately replace those funds into the trust account with “good” funds.  In other words the attorney got scammed for $25,000.00.  The real estate agent’s dream commission is dashed on the rocks.  It is all one big scam.

Our office has had lots and lots of these attempted scams.  Fortunately, we adhere to the rule that no trust funds will ever be disbursed until the deposited funds clear our bank.  We check the account daily to insure we know when funds have cleared into our trust account.  That precludes any possible temptation to write checks too soon before funds have cleared.

Once you know the basic scam you will find minor variations of it.  The latest one we were asked to participate in was just two weeks ago.  We advised the agent that more than likely it was a scam and not to get excited about the potential commission since it most likely will not materialize – and it didn’t.

While very few real estate companies today maintain a trust account the same scam could be pulled directly on the real estate company if the funds were to be deposited into the real estate firm’s trust account.  One big moral of this story is to NEVER disburse funds from a trust account until you know the funds are actually there  – in other words the funds cleared.  To do otherwise is to be writing a trust check on other people’s money already in the trust account.  Avoid doing that at any cost.  It may be tempting to do that.  Cashier’s check can have a ‘stop payment’ placed on the funds and the check won’t clear and you already wrote funds on it; your loss, so avoid the temptation.

It just proves up the old saying that if a deal appears too good to be true it probably is too good to be true!  Have a good and profitable day.

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Mortgage Reform of 2014

Effective January 2014, many regulations of the Mortgage Reform and Anti-Predatory Lending Act, Title XIV of the Dodd-Frank Act, became law, regulated by the Bureau of Consumer Financial Protection. The new regulations set standards for Qualified Mortgages and the obligations for lenders to determine borrowers’ Ability to Repay.

While the majority of home loans are Fannie Mae, Freddie Mac, FHA and other federally backed loans, which are exempt, private lenders must comply with these new standards. And with the tightening of requirements for those federally backed loans, we anticipate an increase in private lending, including seller carrybacks. To determine a borrower’s Ability to Repay, lenders must evaluate at least these eight specific factors: (1) income/assets, (2) employment, (3) monthly mortgage payment, (4) monthly payments on other related loans, (5) monthly taxes and insurance, (6) other debts and financial obligations, (7) debt to income ratio (generally not to exceed 43%) and (8) credit history. The evaluation must be based on verifiable third-party records, including such documents as tax records, bank records, credit reports and invoices.

While lenders are required to keep loan documents for at least three years to establish the Ability to Repay, the regulations provide that Qualified Mortgages are presumed to have complied with the Ability to Repay provisions. All Qualified Mortgages are prohibited from such risky features as interest-only periods, negative amortization, and terms longer than 30 years and limit fees and points to 3% of the total loan (more for loans less than $100,000.00). For Higher-Priced loans, defined as loans that have an Annual Percentage Rate (APR) that exceeds the Average Prime Offer Rate (APOR) by 1.5% for first liens and 3.5% for subordinate liens, if the loan meets the criteria for a Qualified Mortgage, the lender has a rebuttable presumption that the Ability to Repay rules were satisfied. For loans that are not Higher-Priced, if the loan meets the criteria for a Qualified Mortgage, the lender has a conclusive presumption that the Ability to Repay rules were satisfied.

Small Creditors can originate two other types of Qualified Mortgages. Small Creditors have less that $2 billion in assets and, together with affiliates, originate no more than 500 first-lien home loans in the prior year. Qualified Mortgages by Small Creditors must be fully amortized and cannot be sold other than to a Small Creditor for at least three years. For the next two years, Small Creditors can make balloon-payment loans if the loans have fixed interest rate and period (i.e. monthly) payments for at least five years before the balloon-payment. After the two years, balloon-payment loans only may obtain Qualified Mortgage protection in rural or underserved areas.

Other regulations under the Mortgage Reform and Anti-Predatory Lending Act require the use of qualified Loan Originators for most home loans, including restrictions on the Loan Originators’ compensation and fees, although there are exceptions that may apply to seller carrybacks. Regulations under the Home Ownership and Equity Protection Act (HOEPA), regarding high-cost mortgages, as defined by limits on APR, points and fees and pre-payment penalties, require disclosure and consumer counseling prior to closing. These regulations will be addressed in subsequent newsletters.

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I HAVE A COMPLAINT!

Tips and Techniques to Defuse Ticking Time Bombs in Your Communities

As any legal counsel for homeowners associations can tell you, many of the most expensive and complex legal disputes between homeowners and their associations begin with a only a minor frustration. Perhaps a neighbor has one too many late night get-togethers with friends, or the architectural committee approves a slightly different shade of green, or you receive a notice about your weeds when you just pulled them yesterday. However, the following measures can help to resolve many common homeowner disputes efficiently and pragmatically before frustration turns to litigation:

Hold regular meetings. Holding regularly scheduled meetings, even if they are often only lightly attended, provides a forum for interested homeowners to engage with the Board, to learn about the projects they may see in the community, and to discuss concerns in order to ensure that issues are given appropriate attention.

Keep lines of communication open. Publishing community rules, meeting minutes, and even seasonal maintenance reminders, may seem like a small measure, but it can help enhance the visibility of the association in the community, and maintain a level of transparency that inspires confidence in the minds of homeowners.

Create clear guidelines and enforceable rules. Establishing clear and comprehensive architectural guidelines, rules and regulations, and reasonable enforcement policies, including a schedule of applicable penalties serves two beneficial purposes: (1) it simplifies the task of the community manager and the board in addressing most issues that come up regularly in common interest communities, and (2) it maintains uniformity with respect to how violations will be enforced across the community.

When a dispute does happen, maintaining constructive communication between directors, managers, and homeowners is key. Results-oriented complaints usually can be settled in the initial stage and the result will be fewer complaints in the future. Here are some techniques to follow to ensure efficient results: (1) Keep the tone polite and professional. Try not to get angry or emotional; (2) Avoid using threats; threats diminish productive communication and can cause others to respond emotionally, losing sight of the key issue in the process; (3) State clearly what you want done; (4) Listen and ask questions; (5) If negotiation is necessary, be ready to suggest alternative solutions; (6) If there is an agreement, confirm it; and (7) If the problem is complex or money is involved, confirm the agreement by letter.

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The Doctrine of “Frustration of Purpose”

The Arizona case of Next Gen Capital v Consumer Lending Associates (“CLA”) explored the interesting theory of ‘frustration of purpose’.  In discussing the legal theory of frustration of purpose, it is helpful to simultaneously discuss the closely related legal theory of ‘impossibility of performance’.  Both of these related theories are defenses to one’s obligation to continue performance under a contractual obligation.  Do understand when reading about these theories that the parties can always make either or both of these defenses irrelevant and not applicable if they put a provision in the contract precluding either or both parties from being able to raise such a defense.  Now on to understanding these defenses.

Impossibility of performance deals with a situation where the nonperformance by one of the contracting parties arises out of its inability to actually perform one of the material specified obligations in the contract due to no fault of its own.  On the other hand, frustration of purpose deals with a situation where an unforeseen event undermines a party’s principal purpose for entering into a contract and both of the contracting parties knew of this principal purpose for entering into the contract.  That may seem like a fine line distinction but it will become clearer.

Let’s explore an example of each.  Assume you lease a commercial building for the sole purpose of operating an ethanol refinery.  If the property and area are destroyed by a flood and, as a result, the local municipality decides to rezone the area for only residential use then you would be excused from further performance of the agreement.  It is impossible to perform the function of manufacturing ethanol at the facility.   The change in circumstances altered your ability to operate the very business you entered into the agreement to perform.  The change in circumstances made it impossible to continue the principal purpose for which the lease was entered into.  You would be excused from further performance of your contract based on the defense of impossibility of performance.

However, what if, due to a shortage in the supply of corn from which ethanol is made the government suddenly mandated diversion of all corn products to be used in the food chain?  Isn’t the effect the same? Sure, you are now unable to obtain a supply of raw material you need to produce your product.  But if you had the supply of corn you could still produce ethanol.  However, ethanol was the primary purpose for which you leased the property and that purpose has now been frustrated due to unforeseen circumstances.  In this scenario you technically could produce ethanol at the facility but that purpose has become ‘frustrated’ due to a lack of supply of product through no fault on your part.

The Restatement of Contracts, Second § 265 defines frustration of purpose as follows;

               Where, after a contract is made, a party’s principal purpose is
               substantially frustrated without his fault by the occurrence of
               an event, the non-occurrence of which is a basic assumption
               on which the contract was made, his remaining duties to
               render performance are discharged, unless the language or
              circumstances [of the contract] indicate the contrary.

Let’s look at another hypothetical situation.  You have reservations for a very expensive Broadway show to be paid for and picked up at the will-call window. Due to illness of the star, the show is cancelled indefinitely.  The cancellation of the show was unforeseeable by the parties and therefore voids the contract.  You should not have to pay for the tickets since the purpose for your purchase of the tickets was frustrated due to an unforeseen event.  The defense of  ‘impossibility’ is not applicable since technically you could have gone to the theater and sat in the seat you ‘rented’ and sat in front of an empty stage where the show was to have taken place.  Thus the appropriate defense to an attempt to make you pay for the tickets would be frustration of purpose.

So now to the Arizona case; in the CLA case Consumer Lending Associates was a payday lender.  It rented a retail business location from the plaintiff, Next Gen Capital.  In 2010 the payday lending statutes expired in Arizona and the defendant, Consumer Lending Associates could no longer make the loans it was in business to make.  So, in 2010 Consumer Lending Associates stopped paying rent and claimed it no longer was obligated to pay rent based on the defense of frustration of purpose.  The landlord, Next Gen Capital sued, won in the trial court and the case was appealed.

On appeal the Arizona Court of Appeals had no trouble disposing of the case in favor of the landlord. The court indicated that at the time Consumer Lending Associates entered into the subject lease the payday loan statutes were already subject to a sunset provision which meant the right to make such loans expired in 2010, unless legislative action was taken to save the statutes from expiration.  The Court of Appeals indicated that the defendant, a consumer loan lender, was charged with knowledge of the fact it would be prevented from making such loans after 2010 unless the legislature intervened to extend the law.  Thus the court held that since the defendant had such knowledge it could not claim that the expiration of the payday loan statutes somehow caught it unawares in 2010.

The net result was the Court of Appeals affirmed the judgment of the trial court against the defendant, Consumer Lending Associates, and charged the defendant with over $140,000.00 in unpaid rent.

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HUD’S DESPARITE IMPACT RULE

This article is written by request since it was pointed out that many people are unaware of the change in the approach HUD has mandated, effective February 8, 2013, concerning enforcement of the discrimination laws.  The change is commonly referred to as the ‘Disparate Impact Rule’.

The new rule allegedly ‘clarifies’ circumstances under which certain housing practices may violate the 1968 Fair Housing Act (“FHA”).  The protected classes under FHA are race, color, religion, sex, handicap, family status, or national origin.

In the past the way the discrimination laws affecting housing were enforced required a showing of a discriminatory intent on the part of the party charged with the alleged discrimination.  Under the newly released final rule the disparate impact Rule will utilize statistical analysis to ascertain whether there has been discrimination under the Fair Housing Act.

Under the new rule the person claiming discrimination can prove his/her case without proof of any actual intent to discriminate or even the existence of a violation.  Under the disparate impact rule an analysis is provided and relied upon to indicate whether a particular minority group received the same treatment as others.

Under the new rule there is a three part test for determining when a policy or practice results in a discriminatory effect thereby violating the Fair Housing Act:

1. The plaintiff (claimant) bears the initial burden of demonstrating that a particular policy or practice results in, or would predictably result in a discriminatory effect on persons of a particular protected class.

2. If the plaintiff (claimant) proves the burden described in #1 above, then the burden shifts to the defending party to provide a “legally sufficient justification” proving that the action in question was necessary to achieve one or more of its substantial, legitimate, nondiscriminatory interests.

3. If the defendant upholds its burden as stated in #2 above, then the plaintiff (claimant) can still be entitled to recover if he/she can prove that the substantial, legitimate, nondiscriminatory interest could be served by a practice that has a less discriminatory effect.

This is of particular concern to not only individuals or companies providing housing but also to cities and municipalities that provide housing.  They may be sued because of an action or policy which appears to be reasonable and nondiscriminatory on the surface but when applied may have an inadvertent or possibly accidental effect or negatively impact a protected class.

So what might be an example of such an action that could have a disparate impact?  What if a developer of an upscale development tends to market only to people of a higher economic status?  Such an activity could run contrary to the law since it could result in a discriminatory impact.

Now HUD is proposing a new housing regulation requiring government entities to reduce segregation and promote integration.  HUD has proposed a rule that would zero in on trying to implement social change in areas it classifies as ‘segregated’.  It identifies various cities to be aggressively targeted initially.

It claims there has been exclusionary zoning which it defines as any local zoning code that limits development of affordable housing since it claims such laws create barriers to urban minorities.

Ultimately HUD plans on mapping every U.S. neighborhood as being white, Asian, Black or African American or Latino/Hispanic pointing out racial imbalances.  Geographic areas with less than 50% white will be classified as segregated areas.  HUDs goal is to reduce disparities in access to key community assets such as quality schools, jobs, transportation, parks and recreation and even fresh air and groceries.

To accomplish its goals HUD would, under the latest proposal, require any cities taking HUD housing development grants to prepare a disparities analysis every five years.  The analysis would include comparing the employment number for African Americans and white households.  It suggests that lower employment for blacks would indicate that this group might be impeded by insufficient access to important job centers.  Then, to rectify these problems HUD suggests modifying local regulations and codes, constructing new developments, creating new amenities and facilitating the movement of people.

Needless to say there are many vocal advocates for this sweeping change and many who are opposed to it.  There is insufficient room to list many of the pros and cons of the latest changes starting with the disparate impact rule followed by the latest proposed rules piggy backing on the disparate impact rule.

It will be some time before there are bright lines on what is legitimate action in many areas.  For instance, will the new law require lenders to loan money to unqualified borrowers?  Do lenders risk expensive litigation if they are perceived as declining applicants from geographic areas labeled as ‘segregated areas’?  Only time will tell.  If lenders decline to loan to persons with a felony(ies) in their background, is that discriminatory since certain protected classes may have a higher concentration of their class with a felony(ies) in their background?  Those in favor of the new law and newly proposed rules say they will decrease the number of lawsuits since the laws ‘clarify’ what actions are permissible and impermissible.  The advocates claim that the new law and rules clarify the issues so it will reduce litigation.  I suspect you know my opinion on that!

I hope this information is helpful to you.

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Statute of Limitations is Applicable to Quiet Title Claims

A quiet title action seeks a judicial determination regarding the validity of adverse claims to title over a disputed real property. A.R.S. §12-1101 et seq. A quiet title action is generally brought when a person, entity or governmental body claims an interest in real property which is adverse to the interest of another. Typically, rather than seek purely monetary damages, a plaintiff in a quiet title action asks the court to enter a ruling which forever bars the defendant from having or claiming any right, title or interest in the disputed property which is adverse to the rights, title or interest of the plaintiff. Id. The concept behind a quiet title action is for a plaintiff to clear title – to remove a cloud on the title to his property.

The statute of limitations is an affirmative defense. If a claim is not brought within the required period of time after the claim arises, the statute of limitations defense can be implemented to forever bar that claim. However, the general rule pertaining to quiet title actions is that the statute of limitations does not run against a plaintiff who has undisturbed possession of the disputed property. Cook v. Town of Pinetop-Lakeside, 232 Ariz. 173, 303 P.3d 67 (2013). Therefore, in general, the statute of limitations can never be used to bar a quiet title action.

However, there may be an exception to the general rule where the plaintiff does not have undisturbed possession of the disputed property. In Rogers v. Board of Regents of University of Arizona, 233 Ariz. 262, 311 P.3d 1075 (2013), the Arizona Court of Appeals upheld a ruling in which the trial court found that a quiet title action was barred by the applicable statute of limitations.

In Rogers, the plaintiff brought a quiet title action which sought affirmation from the trial court that he had an easement across the University’s property. The trial court ruled that the plaintiff’s claim was barred by the statute of limitations and thus dismissed the claim. The trial court went on to rule that the plaintiff was forever barred from asserting any claim, right, title or interest in the disputed property which was adverse to that of the University.

The Rogers court distinguished its dismissal from the general rule because the plaintiff did not have undisturbed possession of the disputed property. The Rogers plaintiff was not in actual possession of the property at all, but rather used the disputed strip of land to access his property. Ultimately, the University installed a gate and thereby blocked the plaintiff’s use of the disputed property. The court’s ruling hinged on the fact that it was the University, not the plaintiff, who had actual possession of the disputed property. As such, the court found that the moment the University blocked the plaintiff’s use of the claimed easement (and plaintiff demanded the gate be removed), the statute of limitations began to accrue and the plaintiff had a limited period of time (one year) to bring his claim or be forever barred.

As a result of the Rogers ruling, plaintiffs and their legal counsel will need to be more vigilant when deciding how quickly to file quiet title actions. If you are involved in a title dispute, you should consult with legal counsel as soon as practical to ensure your claim is preserved and not barred by the applicable statute of limitations.

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