WAM- Legal Column, September 2002

Legal Column, September 2002
By Rosario Perry, Esq.

SMRR APPOINTS NEW CITY COUNCIL MEMBERS

It has been nothing but a brouhaha for SMRR and the City Council selection process this season at their bi-annual convention. Normally the convention goes off without a hitch, the Oligarchy (Steering Committee) which normally runs the party selects who it wishes to run for different offices in the upcoming election and the fix is in. This year there was a prob-lem. The old timer SMRR members (dominated by the Union element) verses the new comers dominated by the Green party. The reason for the problems this year is that Oligarchy membership is up for grabs. There were only 2 nominated for council: Pam O'Connor and Kevin McKeown. These are incumbents. Old timers wanted Abby Arnold to be nominated but the Greens wanted Josefina Aranda. Both brought their fight to the floor of the convention. And what a fight it was. State Senator Sheila Kuehl (D-Santa Monica) officially endorsed candidate Abby Arnold. (Why is she getting involved? Who knows. Probably to pay back some political favors she owes to the Old Timers).

However, not to be outdone, the supporters of Josefina Aranda passed around a bright blue flyer at the convention attacking Arnold as soft on tenant protection. It stated: "Arnold is inappropriate to carry the SMRR banner in this election. Over the years, she has opposed SMRR's efforts to preserve housing and protect tenants. In fact, has been hostile to SMRR itself. We do not believe that Abby Arnold can be trusted to fight for tenants' rights and affordable housing. Accordingly, we not believe SMRR should endorse her candidacy. " It bore the signatures of Councilmembers Ken Genser, Richard Bloom and Mayor Mike Feinstein (3 of the 5 SMRR councilmembers). The document was also signed by Julie Dad, Jay Johnson and Jeff Sklar, all of whom are or have served on the rent control board. Julie Dad and Jay Johnson are currently serving on the Planning Commission.

To counter the flyer, the Old Timers brought forward (yes you guessed it) Dennis Zane (almost as old as Zane Grey himself, and clearly the oldest of the Old Guard) who strongly endorsed Abby Arnold (she gave him his first paying job). "I have lived and breathed renters' rights for 25 years" If we can't trust Abby we can't trust anyone. Well Abby Arnold was the highest vote getter, receiving 131 votes out of approximately 230 ballots cast. (Kevin McKeown and Pam O'Connor received 128 and 125, respectively.) However, the Green Party side of SMRR cried foul, in that Abby had pack the convention with new members (she encouraged some 100 people to sign up for membership and received some 49 bullet votes (votes for only her even though they had 3 votes). Feinstein claimed foul, Arnold had engineered a power grab with new member ringers, and so the words of disdain flew back and forth. His candidate Joesfina Aranda had only gotten 8 bullet votes.

When all the dust clears, it becomes self evident, that anyone with 100 friends can get the SMRR election, but just getting them to the convention to vote. There are only 150 to 200 turning out at any election. SMRR is up for grabs. It is only the housing providers total lack of interest in anything political that keeps SMRR alive and well. Perhaps the best statement of all this came from Frank Gruber (an ex-Planning Commissioner) who said writing his column in The LookOut on line Santa Monica newspaper (see it at www.surfsantamonica.com) "Feinstein would be selling rollerblades at Green Party conventions if it weren't for SMRR and the living wage supporters who got the vote out for him in 1996 and 2000." P.S. The convention endorsed incumbents Betty Mueller and Alan Toy, and d new timer Jennifer Kennedy for seats on the Rent Board (Bruria Finkel has elected not to run again).

Finally, on the other side of the coin, Bob Holbrook is the only candidate running that is not a SMRR member, that has any chance of winning (he is an incumbent). The election is November 5, 2002.

CITY SPENDNG SPREE REVISTED

Awhile ago the City went to the voters and asked them to approve a $25 million bond act to rebuild the Library. The voters did. But then the City Council decided that amount was not enough. So the decided on a $50 million project instead. Funny how things get out of hand. But that is not half as bad as the Police and Fire Office Building which will cost $65 million, and which the voters soundly rejected at the polls when they were asked to approve even a smaller $25 Million for that project. Well the Police and Fire Building is totally too much. It is 114,903-square feet. The south side of building will be draped in a 13-foot cascading waterfall made from granite imported from India, there will be a penthouse atrium made of green glass, and the entire buildings sports an irregular curved (half moon) and pointed shape. All of this adds to its extravagance.

CITY'S DOWNZONING

The City Council has voted to drop the development review threshold downtown from 30 thousand to 7500 square feet. This means that any project (residential or commercial) which is in excess of 7,500 feet will have to go to the Planning Commission and the watery grave that body holds for all project. Previously, projects under 30,000 sq. feet could be approved over the counter with no fanfare. This means that the large apartment housing units which were being built to help increase the rental housing stock will not be built any-more.

ELLIS ACT— ONE LAST TIME SB 1403
Time To Re-Enter the Market

The ellis act has been amended in the legislature, and is going to the governor for his signature. If signed there will be big changes. The final word on this act is as follows: If an owner Ellises his property (or has already Ellised his property) and has not yet come back into the rental market (prior to December 31, 2002) then whenever the owner comes back into the rental market, the rents must stay at the rent control rent which existed when the notice of intent to Ellis was served on the Rent Board (plus annual general adjustments) for five years from the date the property was deemed withdrawn from Ellis. For most Ellised properties, the date of withdrawal is either 4 or 12 months after the date that the notice of intent to Ellis was served on the Board. Thus if an owner served notice on the Board that he intended to Ellis on June 1, 2000 and the tenants all vacated by October 1, 2000 (date of withdrawal), then when ever the owner went back into business, his rents (no matter how many tenant turnovers he had) would be set at the rent controlled rent in effect on June 1, 2000 (plus annual general adjustments) for five years from October 1, 2000 (i.e. through October 1, 2005). Any new tenancy after that date could be set at market. All other restrictions of Elllis still apply, i.e. the two year wait for coming back into business, etc.

The only protection against this new law is to get back into business and rent the units before December 31, 2002. There is an exclusion in the law which states that the 5 year period provision does not apply to those units which have been rented on or prior to December 31, 2002.

Remember, that pursuant to the ACTION lawsuit against the City of Santa Monica, the City has amended its laws to allow any person to live in an Ellised Property, not just the owner's family members. The City still takes the position that it is illegal for multiple owners to live at the proper. ACTION is pursuing a lawsuit against the City to have that part of the law changed as well. Thus if you have an Ellised property that is family or friend occupied, and two years have elapsed from going out of business, you could rerenter the mar-ket at rent to friend and family at the rent controlled rent. When they moved out, you could go to market, as long as you re-entered the market on or before December 31, 2002.

DROUET STILL UNDECIDED

For those interested in Ellis Act, we are still waiting for Drouet to be decided. Drouet discusses what defenses, if any, tenants can raise if they are being evicted under Ellis withdrawals. The court of appeal decided that only procedural defects could be raised, but tenants wanted the court to sanction "retaliatory eviction" defenses as well. If the tenants' position is adopted by the court, Ellis withdrawals will be harder to accomplish.

HEALTH CARE PROVIDERS

Rent Control Board Regulation 2005 defines Health care Providers. This regulation was the brain child of the old General Counsel Tony Trendacosta. The regulation states that if a tenant needs a health care provider, that tenant can have one, even though the rental agreement states that the tenant may not sublet. The reason this works, according to the regulation is that by definition of the regulation, the health care provider is not a tenant or subtenant. Thus it states that the term "Tenant" as defined in the Rent Control Law (1801(i) does not "include health care providers who reside in rental units for the purpose of providing any tenant with medically necessary care." The regulation also states however that "Such health care providers are not entitled to the protections provided pursuant to section 1806 of the Rent Control Law." Thus when the sick Tenant is no longer residing at the premises, the health care provider must vacate as well. The regulation provides that the Tenant upon request of the housing provider, must provide the following: (a). Proof of the tenants need for the health care provider. ( b). The name, address and telephone num-ber of the health care provider. (c). A signed and dated written statement from the health care provider acknowledging that the health care provider is not residing on the premises as a tenant. The signed and written statement may be on a form provided by the Board.

What this means to concerned housing providers it that when ever a family member or friend comes to live with a sick Tenant, be sure that helper signs a statement with the a., b. and c. statements above. If you allow a health care provider to stay and you continue to collect rent from the Tenant, the health care provider may argue that they can stay on in the apartment after the Tenant vacates. This regulation is an excellent way to maintain control over your building's population, while at the same time accommodating your Tenant's medical needs.

POSTAL BOXES:
Should You Use Official U.S. or Private/Commercial Ones?

The overwhelming answer is that you should use U.S. Post Boxes. The reason deals with service of process. If a person seeks to sue you, and allegedly cannot find you, they can serve your post office box, but only if its a privately run box. They cannot serve you at a U.S. Post Office Box. Thus in many cases, where housing providers do not tell their tenants where they live or work, the Tenant could serve a lawsuit on the housing provider by serving the P.O. Box where they mail their rent checks. This was the holding of the case ELLARD v. CONWAY (Court of Appeal Orange County). In this case the HP not get the complaint and a default judgment was entered against them. The court held that since service was valid at their old P.O. Box, they would have to pay the judgment.

State Law Requires Notice of Specific Information To Tenants:

This brings up a related point. Don't forget that as of January 1, 2002, housing providers are required to give their tenants written notice of certain information. First, the tenant must be told who the owner of the property is OR who can be served with a lawsuit filed against the owner. Second, the tenant must be told (a) how to pay the rent, i.e. in cash or by check, (b) where to pay the rent, i.e. drop box, mailing address, on site manager, or bring check to off site address. If the tenant is required to bring the check to someone (other than mail it) then the tenant must be told who to bring the check to, what days and time the person will be there to accept the rent check. Third, the tenant must be told the name and address of the manager of the building, if there is one. Failure to give this notice may result in the housing provider's inability to evict a tenant for non payment of rent. This notice must be given to all tenants (existing and new). ACTION has a form for this information, and you can call to have it faxed to you. As has been said in previous articles, ACTION recommends that the housing provider install a drop box at the property for all rent checks, and require the tenants to use that drop box exclusively. If a tenant is only allowed to mail a rent check, then all the tenant has to prove is that s/he did mail the rent check, and even if the housing provider does NOT receive the check, it is deemed mailed. Thus the housing provider cannot evict the tenant for non payment of rent.

OWNER OCCUPANCY EVICTION
IS NOT COVERED BY INSURANCE

In a disappointing decision, Swain v. California Casualty Insurance Co. California, the court of appeal in San Francisco, held that a housing provider's insurance company did not have to defend him against his tenants' claim that they were wrongfully evicted. It seems the HP gave the tenants a notice to leave for owner occupancy, but failed to move into the unit. The tenants sued, but the HP's insurance company stated that the service of the notice was not an "occurrence" under the policy. The court started by stating the positive: [T]he carrier must defend a suit which potentially seeks damages within the coverage of the policy.' [Citation.] Implicit in this rule is the principle that the duty to defend is broader than the duty to indemnify . . . ." The duty to defend "' may exist even where coverage is in doubt and ultimately does not develop.' "Occurrence" is defined as "an accident, plaintiff' s eviction of the Chins could not constitute an "accident" because it entailed "intentional conduct." Thus, no occurrence and no protection.

SPECIAL WEB SUPPLEMENT TO PRINTED MAGAZINE:

SANTA MONICA HOUSING PROVIDER ARRESTED
FOR ASSAULT AND BATTERY ON TENANT

In a very disturbing development, a housing provider was arrested recently by the Santa Monica police for assault and battery. The housing provider was egged on by the tenant, and mistakenly grabbed for a camera which the tenant was using to photograph the HP within the apartment. The HP had given notice to the tenant that he intended to enter to make repairs. The tenant, no doubt trying to harass the HP, told him not to enter. The HP entered anyway, but while there the tenant showed up and started taking pictures. The HP grabbed for the camera. Police were called and based on a complaint by the tenant, the police arrested the HP. Bail was set at $1,000. The HP was originally arrested for robbery (totally ridiculous) which charge was reduced to assault and battery.

What can we learn from this? First, the HP was aggressive in going into the apart-ment to make repairs when the tenant told him not to do so. The better move would have been for the HP to give the tenant a 3 day notice to cure or quit stating that the tenant must allow the HP into the apartment on the 4th day (3 days to cure— stop illegal conduct of prohibiting HP to enter). Along with the 3 day notice the owner should have served a notice of intent to enter (stating the 4th day). On the 4th day, the HP should have gone back, if the tenant still did not allow him to enter, then the HP should have filed an eviction lawsuit. However, what if a HP is inside and confronted with a tenant. If the tenant starts taking pictures, the HP should simply ignore it. If the tenant starts making trouble, the HP should immediately call the police or leave. The HP should never use any force against a tenant nor attempt to grab anything from the tenant's person.
If the police do come, and the tenant asks the police to make a citizen arrest, the HP should seriously consider asking the police to make a citizen's arrest of the tenant based on the conduct that the HP is being accused of by the tenant. In this type of situation, where there are multiple requests for citizen arrests being made on the police, the police will tell both sides that they should mutually rescind their requests, or both of them must go down to the police station. This usually works in diffusing the conflict. If the HP does not wish to make a citizen's arrest, the HP can remind the police man that the dispute is civil in nature, and that the police cannot arrest on the basis of a civil dispute. See Stevens v. Rose 9th Cir. 08-02-2002, where the court held that a police officer violated the arestee's constitutional rights by making an arrest arising out of a civil disturbance. "We start with the basic prop-osition that a full-scale arrest must be supported by probable cause. Atwater v. City of Lago Vista, 532 U.S. 318, 354 (2001); Morgan v. Woessner, 997 F.2d 1244, 1252 (9th Cir. 1993) (citing Adams v. Williams, 407 U.S. 143, 148-49 (1972)). In turn, we have previ-ously held that "[b]y its definition, probable cause can only exist in relation to criminal conduct. It follows that civil disputes cannot give rise to probable cause. Civil disputes do not give officers probable cause to arrest." An arrest is clearly established to be unlawful where officer knew the dispute was a civil, not a criminal, matter. Thus if you are even in such a tight fix be sure to tell the officer that the dispute is civil and that the officer cannot make a citizen's arrest based on such a dispute, or the office will be liable.

INTEREST RATES CONTINUE TO FALL;
IS INFLATION IS AT OUR DOOR ?
The Debt Bubble

Is there a consumer debt build-up which we need to worry about? Credit card debt is down, but big ticket single item purchases, like cars and furniture is well up. Well above what it was in the 70's and 80's. Mortgage debt is also up, it is approximately 50% of Gross Domestic Product, well above the 30% level in the 1970's. In addition, as can be seen from the articles below, there is much more re-financing going on, indicating that people are borrowing against their homes to pull out spending money. This activity could back fire if interest rates start to climb, and the economy worsens. However, the Fed Reserve doesn't think any of this is noise for alarm. It held the interest rate steady on August 13, 2002 review date, and by so doing suggests that the risk of another recession is greater than the possibility of inflationary pressure on the national economy. The Fed seems to be saying that it is prepared to cut rates again at the September meeting if economic activity has weakened. The fund rate is unchanged at 1.75. Right now the Fed is counting on already low interest rates and productivity growth to bolster the economy without the additional stimulus of even lower rates.

Mortgage Bankers Association Chief Economist Doug Duncan said there is no reason to expect mortgage rates to rise in the near future. The MBA's forecast anticipates mortgage rates of 6.3 percent on average in the third quarter and 6.4 percent on average in the fourth quarter. The low-rate environment is expected to generate $2.02 trillion of mortgage origination activity this year, a level almost identical to last year's record.But mortgage interest rates are expected to rise next year as the economy improves to 6.75 percent on average for a 30-year fixed-rate mortgage contract. Mortgage origination activity is expected to be far less robust at $1.4 trillion. Duncan said volume will "drop off somewhat" because most homeowners who were able to refi-nance already will have done so.
In mid-August 2002, the average contract interest rate for 30-year fixed rate mortgage was 6.32 percent. The average contract interest rate for 15-year fixed rate mortgages was 5.73 percent. The average contract interest rate for 1-year ARMs was 3.99 percent. Mortgage rates continued to fall according to surveys conducted by both Freddie Mac and Bankrate. In Freddie Mac's weekly mortgage survey, for the week ending August 14, 2002, the 30-year fixed-rate mortgage averaged 6.31 percent, falling from 6.43 percent the last week. The current week's figure breaks the previous 32-year low in Freddie Mac's survey that was recorded just two weeks prior to August 13, 2002. The average for the 15-year fixed-rate mortgage was 5.69 percent. This is the lowest the 15-year fixed-mortgage rate has been since Freddie Mac started tracking it in August of 1991. One-year ARMs averaged 4.37 percent down from last week's the previous week's average of 4.45 percent.

"Recent downward revisions of GDP for 2001 and first quarter 2002 suggest that the economy faces weak growth," said Frank Nothaft, Freddie Mac chief economist. "This led to anticipation that the Fed will reduce overnight interest rates by the end of the year, if not sooner. That expec-tation, in turn, has created a boon for potential and existing homeowners in the form of lower mortgage rates. Additionally, lower rates open the window to homeownership for more first-time homebuyers."
Rates on the benchmark 30-year fixed mortgage fell to 6.38 percent, close to the 6.34 percent mark established the week of July 24, according to Bankrate. Rates on the 15-year fixed rate mortgage and 1-year ARM also fell this week by 12 and 5 basis points, respectively.

"Last week's economic reports were disappointing, but not catastrophic," said Bankrate mort-gage writer Holden Lewis. "Members of the Federal Reserve Board have said all along that the shallow recession would be followed by a sluggish recovery. The economic picture will improve, but mortgage rates will remain low for a while as investors dwell on the negatives."

NO HOUSING BUBLE;
PROPERTY BETTER THAN STOCKS

At a recent (June 2002) meeting of the National Association of Real Estate Editors, in New York, it was agreed that there is no housing bubble, and prices will remain strong. Stephen Kim, home building analyst for Salomon Smith Barney, New York stated as much, there is a strong housing market. The population growth supports housing, then there is the low w cost of mortgages and shortage of housing supply. In a recurring them which we will see time and again, the panel compared the stock market to housing investments, demonstrating that the real estate market out-performed stocks. In the last two years, the stock market has lost value as the median home price rose an estimated 11 percent.þ

The National Association of Realtor's latest economic outlook agrees with the Editor's position. NAR's Chief Economist David Lereah states that despite the slow general economic recovery in the United States, the housing market is on its way to setting new sales records this year with healthy price appreciation. "We've had very low mortgage interest rates and favorable affordability conditions for some time now, and our growing population is creating additional demand for housing. Having a good job gives people the confidence to go ahead with big ticket pur-chases," he said. "There's virtually no risk now that we'll see any shift from the current low level of interest rates, and we don't expect the 30-year fixed mortgage interest rate to rise above 7 percent until sometime next year," Lereah said. "The first half of this year saw unprecedented levels of home sales, and we're expecting relatively slower but still historically strong sales in the second half."

THE EURO

The only thing that might drive up interest rates sooner than next year, is the fear that the American dollar will lose value against the Euro. The Euro is almost at parity with the dollar, and this is causing many european investors to sell off, and stop buying american government securities. To attract these european investors back, the government might have to offer higher rates of interest on its bonds, thus raising the interest rate on property mortgages. Watching the Euro's rise in value against the US dollar may be an indicator of interest rates as well. The question is how long can Greenspan keep the lid on interest if the foreign money is not buying US Treasury Bonds.

REAL ESTATE vs. STOCK MARKET

Is real estate is the way to invest? It is clear that for now, real estate has out performed stocks, and has been more stable in keeping its value. According to the latest quarterly survey conducted by the National Association of Realtors: 1) The median existing home price is up 7.4% from a year ago; 2) Prices in the New York/ New Jersey/ Connecticut area are up 22% from a year ago. 3) They are up 21% in San Diego, 21% in Washington, D.C., 18% in Los Angeles, and 17% in Miami. 4) The average existing home price is up 10.4% from a year ago, the first double-digit gain since the early 1990s, just before the savings and loan industry nearly collapsed. Housing will remain strong as long as interest rates remain low, and inflation stay checked. Real estate has other attributes as well over stocks. An investor can see the property, its condition, and the condition of its tenants. The investor does not need to depend on highly speculative projected income or dividends, or an independent accounting firm's review of cooked books. There is no Enron problem in investing in an apartment or single family home. There is total control, and direct appreciation in value based on owner's input.

RESIDENTIAL REAL ESTATE
AN INVESTMENT LIKE GOLD

Santa Monica, Calif.-based Milken Institute advertises itself as a nonprofit, independent, pub-licly supported economic think tank that focuses on innovations that create broad-based prosperity through job creation and capital formation in the U.S. and around the world. It has recently released a report on real estate which equates it to gold. The investment of choice for Americans in times of economic uncertainty. According to the study, in the 60s investors looked to the stock market for investments, and "residential real estate was just a place to live." But today real estate has become the psychological equivalent of gold, which is tangible and has been considered a "safe store of value" through much of history. The study also attributed the switch to reduced interest rates.

"During times of economic uncertainty, investors seek assets that 'feel' secure," according to the study authored by Susanne Trimbath and Juan Montoya. "Real estate has replaced gold as the 'feel good' investment because it is literally as solid as the ground upon which we stand." While real estate was seen by some as a hedge against inflation in the mid-'70s— a time of high inflation, stagnant stock markets and uncertainty about the economy— investors continued to put money into real estate and equities at a relatively equal pace, according to the study. Investments in real estate and equities began moving in different directions in the '80s and real estate appeared to become the more preferred investment, according to the study. During the 90s, as the stock market rose, investment by households in real estate slowed. And recently, the oppo-site has happened again— as equities have fallen, investment in real estate has risen.

Alan Greenspan taking a beating but still keeps on ticking

"It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed had grown so enormously." Greenspan's It is comments like this, that puts Greenspan at odds with many market enthusiasts. Indeed, many simply think he is incompetent and the cause of much of the recession we are going through at the current time. One writer stated that he found Greenspan to be "the most incompetent and irresponsible central banker in the history of the world." Much of the criticism revolves around his inability to keep the lid on the stock market when it was out of control. However, there are some who criticize the low interest policy he is pushing. Low interest rates may be bad for the stock market. They are great, for the real estate market. Let's hope he will continue to keep interest rates low.

MORTGAGE LOAN APPS REACH RECORD HIGH

According to Mortgage Bankers Association of America (MBA) Mortgage loan applications for the week ending August 2, 2002 increased 6.2 percent compared to the previous week. As a result, the Mortgage Market Composite Index set a new record high, breaking the previous record set the week ending November 9, 2001.

On an unadjusted basis, the application index increased 6.0 percent for the week ending August 2, and was up 100 percent compared to the same week a year earlier. Refinancing activity represented 68.4 percent of total applications for the week ending August 2, increasing from 67.6 percent the previous week. The share of ARM activity decreased to 17.8 percent for the week ending August 2 from 18.8 percent the previous week.

The volume of mortgages made for people to purchase homes will reach a record high of nearly $1 trillion this year, according a prediction this week by the Mortgage Bankers Association of America (MBA). The total dollar volume of mortgages for home purchases is expected to reach $989 billion by the end of 2002, up from $873 billion in 2001, the MBA said. The total volume of mortgages, which includes refinancings, is projected to decrease 16 percent from last year's record total, $1.7 trillion in 2002 versus $2.0 trillion in 2001, according to MBA.

MBA Senior Vice President and Chief Economist Doug Duncan. "The prices of mortgage- backed securities have been very high because investors have been looking for alternatives to falling stock market prices. High prices mean lower rates, and these lower rates are being passed on to borrowers."

HOME PRICES IN CALIFORNIA

"Double-digit percentage increases in the cost of a home continue to impact the ability of many households to purchase a home in California," said C.A.R. President Robert Bailey. "The median price of a home in California jumped 25.5 percent in May to $321,130, compared to $255,860 a year ago."