Volume XI, Number 4 - November 2006

Estate Tax Reform and Key Deduction Renewals Blocked in the Senate Again

Congress was unable to agree on compromise legislation to reform the estate tax before it adjourned for the election. In August, the House approved a three part package (H.R. 5970) that included major revisions to the estate tax, an increase in the minimum wage, and extension of several expired provisions (including the 15 year leasehold improvement and brownfields cleanup deductions). The Senate was unable to pass a procedural motion that would have permitted final passage of the so-called "trifecta" bill. Congress could try to address the issue once more in a lame duck session after the November elections.

TIC Issues Getting the Attention of Senate, ARELLO

Several issues related to Section 1031 like-kind exchanges are currently under review by Senate staffers, including a possible requirement that Form 8828 become a mandatory filing, the proper amount of deferral on TIC properties, holding period requirements for replacement property, and the treatment of collectibles. The issue surrounding deferral amounts on TIC properties relates to fees. The fees associated with TICs are said to range as high as 25% of the acquisition cost. Congress will examine whether taxpayers engaged in exchanges should be permitted deferral treatment for these fees. Congress will also examine whether deferral treatment is appropriate for collectibles.

The Association of Real Estate License Law Officials (ARELLO) has formed a Tenant in Common Task Force that, among other things, will look into the sale of TIC securities by broker dealers without a real estate license and develop a series of recommendations to address this issue. In addition, ARELLO's TIC Task Force will work with the North American Securities Administrators Association (NASAA) to develop a joint understanding on how TICs should be regulated.

Commercial Real Estate Lending Addressed by Congress, Regulators

On Tuesday September 26th, the Senate Banking Committee held a hearing on the Basel Accords. At issue was the pace of Basel II implementation, the desire of some large banks to use different formulas in determining regulatory capital, and the competitive advantage that Basel II has over Basel I in commercial real estate lending. Basel II currently has lower capital requirements and makes greater distinctions between classes of commercial real estate than the proposed Basel IA. Thus, as it currently stands, Basel II banks - the 10 largest - would have lower capital requirements on commercial loans than Basel IA banks. NAR submitted a statement for the record that made the following points: (1) Basel IA should be modified to take into account the unique characteristics of each class of commercial real estate; and (2) that the regulators' proposed guidance on commercial real estate lending also be modified to account for the different performance characteristics of each class of commercial real estate and the differing economies of local markets. Several Senators also raised concern that the implementation of Basel II would give large banks an advantage over smaller banks in commercial real estate lending and urged regulators to level the playing field. Read NAR' statement to the Senate Banking Committee (pdf).

On September 14th, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing on the Basel Accords and Commercial Real Estate Lending. Furthermore, the financial regulators published draft guidance on commercial real estate lending to advise banks to strengthen their risk management practices if too much of their portfolio is concentrated in commercial real estate.

Several prominent subcommittee members expressed similar concerns in their questioning of the financial regulators. It is likely that these regulatory initiatives will be the subject of further hearings and scrutiny in the next year. Read NAR's statement to the House Subcommittee (pdf).

Results of Data Security Survey

Congress is considering legislation providing for procedures to be followed by businesses when clients' sensitive personal information is stolen. Currently, over 30 states have varying laws in place. Congress wants a consistent standard signed into law preempting state laws. The CCIM Institute is concerned with federal legislation that would apply to commercial real estate professionals, requiring them to comply by notifying clients when data is breached.

In order to determine what CCIM Institute members are currently doing, and what they are willing to do, the CCIM Institute conducted a survey to acquire real estate managers' points of view. Surveyed members were asked several questions, including what type of information they collect from clients, the number of client records they keep, and if they had been affected by data security breaches. Surprisingly, 1/3 of members had been a victim of a virus, identity theft, or hackers in the last year.

When the CCIM Institute conducted its survey, it found 24% of CCIMs had a written policy. It is in real estate managers’ best interest to have a written policy. The Better Business Bureau reported 89% of customers felt more confident in giving their personal information to a business that had a detailed but readable privacy policy.

Members are relatively well informed of state laws mandating businesses provide notification to affected customers if a data breach occurs: 35% of CCIMs are aware of such laws. Legislative staff would like for all members to be aware of current data security laws and proposals in their states. To look at state legislative proposals, use the CCIM Institute State Legislative Database. For questions about existing state laws, contact Vijay Yadlapati at vyadlapati@ccim.com.

New Statement of Policy on Data Security

CCIM Institute Legislative Staff has been monitoring federal legislation due to their concern commercial real estate professionals could be included in the scope of the legislation and real estate managers would have to comply by notifying clients when data is breached.

It is important that the CCIM Institute monitor these proposals because some of the provisions in these bills could be onerous on real estate professionals. For instance, a House proposal prescribes consumer notification requirements and prohibits charging the related consumers for the cost of the notices and file monitoring regarding data security breaches. If that bill became law, a manager or broker whose computer is stolen could have to notify all his or her clients and provide file monitoring at no cost to them.

The CCIM Institute, in cooperation with NAR, is monitoring data security legislation and will lobby on behalf of the interest of its members.

During the governance meetings, the CCIM Institute Legislative Subcommittee adopted a new Statement of Policy on data security. The new position, which will be taken up by the Executive Committee and Board of Directors at their next meeting, states our concerns with Congressional proposals that contain provisions that would require businesses to notify the consumer of a security breach and potential costs of compliance with those laws.

New Commercial Broker Lien Law Statement of Policy

Several states have been exploring, or have enacted, a commercial real estate broker’s commission lien law. Litigation to recover fees often consumes the entire fee the broker earned and would have been paid, and is not always swift, to the detriment of the real estate brokerages and commissioned agents involved in the transaction. These laws have been enacted to solve the problem of brokers going into a closing of a sale and, without mutual consent, receiving a fee lower than previously agreed, upon, or in some cases, no fee at all.

The CCIM Institute Legislative Affairs Subcommittee approved a new Statement of Policy supporting the enactment of commercial broker lien laws in all states to provide adequate assurance of payment for brokers who previously had no means of insuring payment of the agreed upon fee for their services, other than costly legal battles. The Statement will be addressed by the Executive Committee and the Board of Directors at their next meeting.

Lien laws need to be as forceful and efficient for the commercial lease transactions as for commercial real estate sales. As more and more states contemplate creation of such laws, listing commercial brokers will have a greater sense of security when completing a transaction, which is beneficial to not only the brokers themselves, but their clients and the commercial real estate market as a whole.

National Flood Program Reform Effort Stalled, FEMA Issues Appeals Rule

The House passed the Flood Insurance Reform and Modernization Act (H.R. 4973), which called for reforms of the program along with an additional increase in it’s borrowing authority, in late June 2006. Similar legislation in the Senate (S. 3589) was blocked by Louisiana Senators Mary Landrieu and David Vitter, who expressed concerns about that bill’s higher allowable annual increase in insurance premiums for severe repetitive loss properties.

NFIP administrators announced that the program has enough funds available to cover claims through February 2007, which removed much of the urgency for a quick compromise between the House and Senate bills. The CCIM Institute will continue it’s advocacy of this issue when the new Congress convenes in January.

On October 13, 2006, the Federal Emergency Management Agency (FEMA) issued a final rule on the appeal of decisions relating to NFIP claims, as was required by Congress in 2004. The rule formalizes current appeals practices, which allow appeals up to 60 days after the receipt of the insurer’s final claim determination. FEMA will acknowledge receiving the policyholder’s appeal in writing and advise them as to whether any additional information is required for further consideration. After they review the submitted documentation and conduct an investigation, FEMA will inform the policyholder and the appropriate insurance carrier of their decisions regarding the appeal. FEMA stressed that this process does not affect a policyholder’s right to file a lawsuit against an insurer, or the statute of limitation for such a filing. View the entire rule, as published in the Federal Register (pdf).

National Disaster Insurance Addressed by House Subcommittee, Action Promised for
Next Year

On September 13, 2006 the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises of the House Committee on Financial Services held a hearing on stabilizing insurance markets for coastal consumers. NAR submitted a statement for the record. Subcommittee Chair Richard Baker (R-LA) stated that he viewed the hearing as the beginning of a thorough examination of all perils, risks and potential remedies. He further noted that he wants to begin the process early next year of holding roundtable discussions with interested parties to discuss potential solutions, and would like for Congress to act on legislation early next year. Subcommittee Ranking Member Paul Kanjorski (D-PA) stated that he would like to see insurance rates reflect risk and that the Government Accountability Office (GAO) is working on three studies on this issue. View NAR’s statement (pdf).

Congressional staff told NAR that Congress will not act on natural disaster insurance until legislation to reform the National Flood Insurance Program has been enacted. NAR sponsored a symposium on September 18 that brought together private and public sector participants to begin discussing solutions to the federal natural disaster issue. The CCIM Institute will continue to work with NAR, Congress and other interested stakeholders to craft a solution to this important issue. View more information from the symposium.

Terrorism Risk Insurance Report Issued by President’s Workgroup, House Subcommittees Hold Hearings

The report by the President's Working Group on Financial Markets, mandated by the Terrorism Risk Insurance Extension Act of 2005 (TRIEA), did not make any specific recommendations regarding the future of federal involvement in ensuring the availability of terrorism coverage after TRIEA expires at the end of 2007. However, its conclusions leave the administration some leeway in supporting the extension of some kind of federal presence in the terrorism insurance market.

The Investigations and Oversight, and the Capital Markets Subcommittees of the House Financial Services Committee held a hearing on the future of terrorism insurance on September 27th. NAR submitted a statement for the record that made the following points: (1) 84% of outstanding commercial mortgages require terrorism insurance; (2) Without terrorism coverage it is very difficult to finance commercial real estate transactions; (3) Extreme fluctuations in terrorism insurance rates impact both the operating expenses of a commercial property and as a result the value of the property. Increases in terrorism coverage cannot be passed on to tenants in triple net lease deals, or in multi-family projects where rents are federally subsidized.

Because of these points, NAR supports the creation of a semi private mutual reinsurer that would be subject to Treasury and Congressional oversight to ensure the long term availability of terrorism coverage. The reinsurance proposal, developed by the Real Estate Roundtable, would create "Homeland Security Mutual," a reinsurer that would be privately funded but supported by the federal government until Homeland Security Mutual reaches $30 billion in reinsurance capacity. View NAR's statement.

Small Business Health Plans Update

The Senate recessed for the November elections without taking up S. 1955, the Senate small business health plan (SBHP) bill. The Senate leader, Senator Frist (R-TN) has publicly stated that passage of SBHP legislation is one of his top priorities and that he is exploring all options for bringing S. 1955 back to the floor. With the current political climate and numerous unfinished appropriations bills yet to consider, it is unclear how much beyond these spending bills will get done during the post-election lame duck session.

The CCIM Institute had issued a Call-to-Action in August in which members were asked to sign the NAR Action Center petition in support of SBHPs. Thousands of letters were sent to US Senators and Representatives by NAR, CCIM Institute, and IREM members. Check out future CCIM Institute Calls-to-Action.

Pension Protection Act Signed Into Law

The Pension Protection Act of 2006 was signed into law by the President on August 17. The new law is the most significant pension-reform legislation since the passage of the Employee Retirement Income Security Act of 1974. The new law strengthens the Federal Insurance Pension System by toughening rules for businesses that offer private pension plans to their employees.

The new law makes it easier for employees to participate in defined contribution plans, including IRAs and 401(k)s. The higher contribution limits for IRAs and 401(k)s have been made permanent. Employees will have more information about the performance of their accounts as well as greater access to professional advice about investing for retirement. Additionally, barriers that prevented companies from automatically enrolling their employees in these plans have been removed.

Banks in Real Estate Update

On September 27, 2006, the House Government Reform Subcommittee on Government Management, Finance and Accountability held an oversight hearing on the OCC’s decisions authorizing national banks to invest in commercial real estate projects. In December 2005, the OCC announced it was authorizing national banks to engage in real estate development, ownership, and merchant banking through three separate interpretive rulings: 1) approving PNC Bank’s request to develop a project involving retail space, offices, a hotel, and 32 condos; 2) approving Bank of America’s request to develop a luxury hotel in which less than half of the rooms will be used for its own business purposes; and 3) approving Union Bank’s request to own 70% of a windmill farm.

Chairman Todd Platts (R-PA 19th) grilled Julie Williams, the OCC’s chief counsel, on the approval of Bank of America’s request to build a Ritz Carlton on the grounds that the luxury hotel is “necessary” to accommodate lodging for bank visitors when there is already a 365-room Omni Hotel and 434-room Marriott directly across the street from the bank’s headquarters. Representative Towns (D-NY 10th), ranking member of the subcommittee, focused his concerns on the OCC’s approval of PNC Bank's request to build and sell residential condos which are in no way related to the business of the bank. Representative Towns said the OCC decisions “created potential loopholes” for banks to engage in real estate brokerage.

Representative Kanjorski (D-PA 11th) put Ms. Williams in the hot seat when he asked, “how is owning a hotel not commercial?” Ms. Williams indicated that Bank of America will not own the hotel, but instead, a third-party company (Ritz Carlton) will be operating it. Mr. Kanjorski replied, “anyone who owns a hotel can hire a company to run it . . . but you’re still in the hotel business.”

Property Rights Bill Passed by House of Representatives

On September 29, the House of Representatives passed H.R. 4772, the Private Property Rights Implementation Act of 2006, by a vote of 231-181. The CCIM Institute lobbied in support of H.R. 4772 at its most recent Capitol Hill Visit Day on April 26, 2006, and continues to support the legislation.

H.R. 4772 would help ensure due process for property owners when their rights have been violated and their property has been taken. The bill would clear procedural hurdles that affect property owners’ access to justice and gives them their “day in court” to protect their rights. Currently, property owners do not have the option of directly pursuing a Fifth Amendment claim in federal court. They first must exhaust all possible state and local administrative remedies. H.R. 4772 would shorten the process by clearly defining a final agency action, thereby eliminating a cycle of potentially endless appeals. The bill applies only to claims filed in federal court by property owners seeking relief from violations of federal statutory and Constitutional law. It would not give federal courts new authority on questions that are legitimately under state court purview.

Beware: States and Localities Target Landlords and Employers in Immigration Reform

Many state legislatures and local governments became frustrated with the lack of progress made by Congress related to immigration reform and have considered or enacted their own measures.

A handful of states have recently enacted laws targeting employers who hire illegal immigrants. Employers in Colorado are required to examine the work status of each employee and retain proof the employee has legal work status within 20 days of hire. In Georgia, employers will have to begin verifying the status of employees hired after January 1, 2008. In Texas, businesses are prohibited from deducting the costs of salaries and benefits for undocumented workers from their taxable revenue.

It is much more heated at the local level where several localities across the country have enacted ordinances attempting to enforce immigration laws and deter illegal immigrants from settling in their communities. These ordinances require landlords and employers to verify the legal status of every applicant for an apartment or a job or face stiff fines, which is burdensome on commercial real estate professionals.

The city of Hazelton, Pennsylvania, for example, passed an ordinance fining landlords $1,000 for renting to illegal immigrants and denying business permits to businesses that hire them. The city delayed enforcement of the ordinance after reaching an agreement with the ACLU and Hispanic groups who wanted the law declared unconstitutional. The ordinance has been revised. Recently the Village of Carpentersville, a suburb of Chicago, held a meeting where 3,000 people showed up to discuss the Village’s proposed ordinance. The meeting has been postponed until they find a larger meeting place. The Village’s insurer threatened to deny coverage for legal expenses because its proposal had liability exposure. In response, the proposal has been amended to resemble the new version of the Hazelton, Pennsylvania ordinance.

Proponents of these ordinances have unfairly targeted employers and landlords. There are several reasons why employers and landlords should not be targeted. From a fiscal standpoint, going after them is expensive and would require cities with the ordinances to increase their police forces. Fortunately, these ordinances do not pass easily in every city. For instance, in Florida, ordinances were voted down by city councils in Avon Park and Palm Bay.

Meth Offenders Listed By States Online

Many states have created online registries listing names of individuals who have been convicted of manufacturing or selling methamphetamine (“meth”). State legislatures in Illinois, Minnesota, Montana, and Tennessee have created such registries. Proposals are being considered in such states as Georgia, Maine, Oklahoma, Oregon, Washington, and West Virginia. When state legislatures convene their sessions next spring, more states are expected to consider creating meth registries.

FTC Increased Fees for Do Not Call Registry Access

The FTC has increased fees for access to the Do Not Call Registry. For individual area codes in excess of the five free codes, the fee increased from $56 to $62. For access to the entire registry, the fee has increased from $15,400 to $17,050. The new fee schedule went into effect on September 1, 2006. View the final rule issued by the FTC (pdf).

President Enacts Amendments to the Fair Debt Collection Practices Act

A new law was recently enacted which benefits apartment building owners and their legal counsel when legal action is being taken to collect overdue rent or evict a tenant. On October 13, the President signed the Financial Services Regulatory Relief Act of 2006, S. 2856, into law. S. 2856 amends the Fair Debt Collection Practices Act (FDCPA), which was enacted in 1977, to address compliance issues. The new law clearly states that a formal pleading does not constitute an initial communication under the FDCPA and consequently the formal pleading does not trigger the need for validation notice disclosures. Additionally, a debt collector’s right to collect within the 30-day validation period is protected.

Now, when an owner issues a collection notice or an eviction notice in the owner’s name, and then the owner’s lawyer files a lawsuit against the tenant, that lawsuit would not trigger the notification requirements.

Radon: An Emerging State Issue

In 2005, the U.S. Surgeon General issued a national health advisory urging Americans to test their homes to find out how much radon might be present. In the past three months, news stories regarding increased radon levels being detected have appeared in Illinois, North Carolina, New Hampshire, Iowa, and Montana. While none of the stories alluded to potential new regulations or legislation, it could be taken up by regulators or law makers responding to the increased awareness and concern.

The CCIM Institute opposes any form of mandatory testing for radon tied to the real estate transaction process, but would not be opposed to legislation that mandates sellers and lessors provide a radon information pamphlet or disclose the results of previously conducted radon tests. We support language in any radon related legislation limiting the liability of sellers and lessors who comply with that bill’s provisions.

Water Conservation: A Growing Concern

According to the Environmental Protection Agency (EPA) over 40 states have some type of water conservation program, and more than 80 percent of water utility customers are willing to use some form of water conservation measure. CCIMs are no exception, and the CCIM Institute supports continued voluntary usage of water conservation efforts, as well as state efforts and initiatives that encourage economic growth while promoting the sustainability of water resources.

The Water Conservation briefing paper, prepared by CCIM Institute Legislative Staff, contains a case study on new legislation proposed in New Jersey mandating that all outdoor sprinkler systems be equipped with rain sensors, which automatically shut off the system when the weather makes sprinkling unnecessary. This is the sort of sweeping mandate that the Institute is opposed to. Legislative Staff will stay on the lookout for other such proposals. View the CCIM Institute’s briefing paper on Water Conservation (pdf).

New and Improved State Legislative Database

The new and improved State Legislative Database is now available! It is easier to use and offers the most up-to-date information. Some of the new features include:
• New and updated categories of bills to search.
• Run your own reports.
• View full bill text.
• Check out bill sponsors.

Log in to this member exclusive service!

If you have any questions, please contact the CCIM Institute Legislative Liaison, Vijay Yadlapati, at (800) 837-0706 extension 6033 or vyadlapati@ccim.com.

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