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Volume X, Number 2 - June 2005In this bulletin: New Tort Reform Law Should Limit Class Action LawsuitsOn Friday, February 18th, President Bush signed S. 5, the Class Action Fairness Act, into law. The bill establishes a uniform set of criteria for determining when a multi-state class-action lawsuit can be moved from state court to federal court.Previously, Federal courts had jurisdiction over lawsuits dealing with a Federal question and cases in which all plaintiffs are citizens of jurisdictions different than all defendants, and each claimant has an amount in controversy in excess of $75,000. The new law authorizes federal courts to hear class-action suits involving over $5 million where the case is outside the home state of the defendants or less than one-third of the class is located in the home state of the defendants. If two-thirds or more of the class members are from the defendant’s home state, the case would not be subject to federal jurisdiction. The federal court can recuse jurisdiction when more than one third of the class resides in the same state as the defendant, based on six specific factors. The objective in moving the suits to federal courts is to make it significantly more difficult for the lawsuits to be approved. The new guidelines are also intended to limit the ability of plaintiff attorneys to "venue-shop" when filing class action suits. Finally, the law would also crack down on "coupon settlements" in which plaintiffs get little but their lawyers get big fees. It would link lawyers' fees to the amount of coupons redeemed. The CCIM Institute lobbied for this bill. Bankruptcy Reform Becomes Law After All These YearsOn April 20, 2005 President Bush signed a bankruptcy reform bill into law. There are four main issues of bankruptcy reform that impact REALTORS® and the real estate industry. These provisions will better position real estate assets when tenants or owners file for bankruptcy. The law will positively impact many kinds of real estate including condos, homeowner associations, rental properties (both single and multifamily), retail centers, and single assets such as office, multifamily, or other commercial buildings. These provisions are:
Banks Keep Pushing to Get Into Real EstateThe CCIM Institute continues to work in tandem with NAR to oppose a proposal by the Federal Reserve and Department of Treasury to allow bank holding companies to engage in real estate brokerage or property management activities. HR 111 and S 98, legislation that would prohibit such activities, have 221 and 22 cosponsors respectively. The CCIM Institute and NAR both lobbied for these bills during their recent visits to the Hill.Changes Sought on Real Estate Mortgage Insurance Conduits (REMICs)A Real Estate Mortgage Investment Conduit (REMIC) is a tax vehicle created by Congress in 1986 to support the housing market and investment in real estate by making it simpler to issue real estate-backed securities. REMICs play a critical role in providing capital for residential and commercial mortgages. However, updates are needed to make this tool workable in the current marketplace. Changes are required to allow for common modifications/changes to real property that is securitized under a REMIC.The CCIM Institute is working with NAR on a two-pronged approach, legislative and regulatory, to implement the REMIC changes. On the legislative front, H.R. 1010, the REMIC Modernization Act, introduced by Representatives Foley (R-FL) and Pomeroy (D-ND) is pending before the House Ways and Means Committee, and S. 580, the REMIC Modernization Act, introduced by Senators Smith (R-Or) and Conrad (D-ND) is pending before the Senate Finance Committee. The CCIM Institute lobbied for these bills during the Capitol Hill Visit day. On the regulatory front, NAR and its industry partners are endeavoring to have the proposed REMIC changes incorporated into Treasury's business plan. The CCIM Institute Works to Provide Health InsuranceA significant number of America's 45 million uninsured citizens go to work every day. They work for small employers that cannot afford to offer quality health insurance benefits. Small businesses are generally unable to achieve the efficiencies of large group rates that would be comparable to a union or large employer plan. Legislation has been introduced to allow bona fide associations to offer federally regulated health insurance coverage plans that are exempt from costly state-mandated coverage provisions. At the CCIM Institute Legislative Affairs Subcommittee meeting in Chantilly, VA, the Institute approved policy supporting such programs.H.R. 525 and S. 406, the Small Business Health Fairness Act, are currently pending. Similar bills have passed the House in several sessions of Congress over the past decade, but have never cleared the hurdle in the Senate. H.R. 525 and S. 406 would authorize the creation of small business health plans (SBHPs), also known as association health plans (AHPs). The legislation would allow small businesses and the self-employed to band together to purchase quality health care at a lower cost. The CCIM Institute lobbied for these bills during the Capitol Hill Visit Day. A vote in the Senate is expected in the next month. On June 1, 2005, the CCIM Institute Legislative Division issued a “Call to Action” urging members to contact their federal legislators to tell them to support the passage of S. 406, the Small Business Health Fairness Act sponsored by US Senators Olympia Snowe (R-ME) and Robert Byrd (D-WV). Members can quickly send an email or fax a letter to their federal legislators by signing up and using the NAR Action Center at www.naractioncenter.com. Terrorism Insurance Set to ExpireThe Terrorism Risk Insurance Act (TRIA), passed in 2002 and set to expire at the end of this year, is a three year program designed to ensure terrorism insurance availability following economic impacts of the 9/11 attacks. TRIA created a program by which the federal government would cover a certain percentage of insurance premiums attributed to a terrorist event. Terrorism insurance extension bills have been introduced in the Senate (S. 467) and in the House (H.R 1053). The CCIM Institute lobbied for these bills during the recent Hill visits. Congress is expected to review these bills this summer.Estate Tax Repeal VictoryHeadway to make the Estate Tax Repeal (H.R. 8) permanent has made progress with a final vote in the House of 272-162 (with 42 Democrats voting in support). The bill awaits Senate approval. Currently, the estate tax repeal would be effective only for 2010 but would go back to its former 2001 tax structure in 2011.Some members of Congress (particularly in the Senate) have indicated they will vote for a measure to reinstate the Estate Tax in 2011 directed for the wealthy (assets exceeding $5 million) whilst protecting small businesses and farms. Tax Reform Commission/Advisory Panel UpdatePresident Bush’s Tax Reform Commission held a hearing on March 3. Following the hearing was a discussion from the President’s Tax Advisory Panel on depreciation and state/local taxes in April as well as a two-day public meeting on May 11 and 12. The panel indicated that state tax systems would not benefit from particular types of tax reform proposals. At a tax reform panel in April, witnesses from the Federation of Tax Administrators, the Multi-state Tax Commission, among others, testified and gave mention to three main problems taxpayers would face if these proposals were realized. These problems include: creating new state tax systems as a result of major federal changes to the structure (in reference to states that have income taxes piggybacking onto the existing federal system); states losing advantages in financial markets from issuing state and local bonds if interest income becomes tax-free; and creating new budgetary pressures from repealing the deduction for state and local taxes under the regular income tax as a method of ‘fixing’ the Alternative Minimum Tax (AMT).At the May 11 meeting of NAR’s Federal Taxation Committee in Washington, DC, the aforementioned issues were addressed as well as a discussion on the President’s future tax plans. Since projections of the federal deficit are not as high as formerly predicted (due to higher tax receipts on April 15), tax-writers will seek new ways to raise revenues when Congress considers Social Security and Tax Reform measures this coming summer and fall. NAR’s tax committee will continue to closely monitor the developments of the President’s Tax Reform Commission. For more information, please contact the CCIM Institute Legislative Division at (312) 329-6033. The Patriot Act and the Terrorism ListLast fall a number of articles appeared in the news media regarding the obligations of commercial real estate brokers and property managers to comply with anti-money laundering regulations that have been enacted in the past several years as part of the war on terror. The USA PATRIOT Act contains a number of provisions designed to help cut off the sources of funding available to terrorist organizations worldwide. At this time real estate professionals are not subject to these requirements, which are limited to financial institutions.Commercial brokers and other real estate professionals need to be aware, however, of their obligations under Executive Order 13224, issued by the President in the wake of the 9/11 attacks. This order prohibits American citizens and businesses from entering into business transactions with citizens of countries against which the United States has imposed sanctions and designated individuals who are associated with terrorist or terrorist-linked organizations. Any professional whose practice involves transactions with foreigners or foreign properties should be particularly aware of who he or she is dealing with. A list of these “Specially Designated Nationals and Blocked Persons” is available from the Treasury Department’s Office of Foreign Asset Control (OFAC) at http://www.ustreas.gov/offices/eotffc/ofac/sdn/. Many private companies offer software to help scan customer and tenant lists for matches on this list. While OFAC has not adopted specific due diligence procedures or other guidelines for real estate professionals, commercial brokers should be aware of these requirements, especially if they are managing properties in major metropolitan areas, such as New York or Washington, DC. CCIM institute staff has also found that many management agreements are now requiring the commercial broker and property manager to conduct tenant and employee screening to ensure that they are not unwittingly bringing a Prohibited Person onto properties that they manage. An investor in a joint venture, REIT, or TIC should make sure that the company they are investing in and/or with has a process for selecting investment partners through OFAC. Investment fund operators should check every investor and the chief beneficial owners of each investor if the investor is an entity such as a LLC. Penalties for non-compliance are severe. Credit Reporting: Disposal of Consumer InformationMembers of the Real Estate Mortgage Investment Conduits (REMIC) Coalition met the first week of February with IRS officials to address regulatory changes presented through workings of upcoming legislation.Modernized REMIC language seeks to ease the rules governing loan modifications that have previously had a dulling effect on the securitization of commercial loans. For more information on REMIC and other policy issues affecting the commercial real estate industry, download the CCIM Institute Statement of Public Policy. Do-Not-Call ExemptionsIn response to NAR’s request that the Federal Communication Commission (FCC) modify its 2003 Telephone Consumer Protection Act (TCPA) to allow “For Sale By Owner” (FSBO) calls and expired listings to be excluded from the current Do-Not-Call rules, the FCC issued clarifications to the usage and definition of FSBOs.The FCC declared that calls to FSBOs by real estate professionals representing a potential buyer are not characterized as telephone solicitations if the purpose is to discuss the potential sale of the property to the buyer. However, the FCC did decline exemption of Do-Not-Call rules to expired listings and to FSBOs provided the purposes are to offer services to residential subscribers. The FCC also denied the call for exemptions of Do-Not-Call rules by other groups such as the Independent Insurance Agents, the Direct Marketing Association as well as other professional associations. The FCC issued an order in February to address all of the requests by the aforementioned groups stating their refusal to consider further exemptions of the Do-Not-Call rules that were finalized in 2003. Provisions of the Do-Not-Call Registry were in effect beginning October 1, 2003. Update on Do-Not-Fax LegislationSenate Bill 714, the Junk Prevention Act, which seeks to relax some of the rigidity of the FCC’s Do-Not-Fax rules, was reintroduced by U.S. Senators Gordon Smith (R-OR), Ted Stevens (R-AK) and Daniel Inouye (D-HI) before the CCIM Institute Hill Visits on April 6, 2005.After the approval of S. 714 by the Senate Commerce Committee on April 14, the bill currently awaits consideration by the full Senate. In strong efforts to petition the Do-Not-Fax rules that would impede real estate transactions and to make sure S. 714 passes to law, NAR is working closely with leadership on the House Energy and Commerce Committees to secure passage of a House companion bill so that these new laws will be secured before the written permission laws go into effect July 1, 2005. NAR’s petition asks the FCC to extend the implementation of the Do-Not-Fax laws to December 31, 2005 in order to give Congress time to work on pending legislation (S. 714). Further updates to the status of NAR’s petition will be given at the time of notification. The CCIM Institute State Legislative and Regulatory Tracking ProgramMembers of the CCIM Institute will soon have the capability to search online for all state legislative bills in the interest of commercial real estate. The CCIM Institute is currently in the works of developing a web based system that will allow users to search for relevant state legislation from sessions dating from 2003 to present. The search options will include State, Bill Number, Session, Category and Date.Categories include all commercial real estate related legislation from Business issues to Health and Safety topics. The Institute will announce a release date of the state legislative database program closer to the final completion of the project. Currently, the CCIM Institute Legislative Division distributes weekly state legislative reports to select states as part of a pilot program to inform interested members of legislative developments. NAR Commercial TIC ForumAt the NAR Midyear Legislative Meetings on May 12 in Washington, DC, the 2005 Economic Issues and Commercial Real Estate Business Trends Forum had a panel discussion on the issue of Tenant in Common (TIC) transactions in an effort to educate members in the commercial real estate industry of the TIC marketplace.As an overview, TIC exchanges, characterized by a fractional interest or co-ownership in real estate, have increased ten fold (330%) since the 2002 IRS ruling allowing TICs to be used in 1031 tax deferred exchanges. Although the distinction is not clear, TICs are typically brokered either as a securitized offering or as a real estate offering in which the former characterization leaves TICs subject to federal and state securities regulations. As a securitized transaction, TICs are looked over by the Securities and Exchange Commission (SEC) as well as the National Association of Securities Dealers (NASD) in which their rules prohibit brokers from giving compensation to non-broker dealers in the event of brokering securitized TICs. On March 3, 2004, the NASD distributed a Memo (5-18) listing guidelines to members on TICs. The NASD memo only pertains to NASD members and does not help to define the controversial distinction between a securitized TIC exchange and a real estate TIC. NASD issued another Memo in March, 2005 stating: "Under rule 2420, a member may not pay a real estate agent who is not registered as a broker dealer for participating in the transfer of a TIC interest that is structured as a security, nor may a member pay such real estate agent for referring TIC business that involves securities." Further, "A member may not evade rule 2420 through indirect payments; for example, a member may not engage in an arrangement in which it reduces its normal commission for a TIC exchange so that the customer will pay the real estate agent for participating in the TIC exchange or for referring business to the broker dealer." In the forum, NAR listed 21 risks for real estate brokers associated with group sponsored investments including ‘liabilities from referring an Investor to a single sponsor’ to ‘providing advice or due diligence services to Investor concerning a specific group sponsored investment.’ For more information on the risks involved with the TICs, please contact the CCIM Institute Legislative Division at (312) 329-6033. Staff will also provide further statistics and other informational items from the Forum upon request. Legislative Affairs Subcommittee OverviewThe CCIM Institute Legislative Affairs Subcommittee had their biannual meeting on April 18, 2005, during the Business meetings in Chantilly, Virginia. The subcommittee passed three new and revised statements of policy regarding Federal Ownership and Leasing, new regulations of the Americans of Disabilities Act of 1990 (ADA) and Small Business Health Plans. The subcommittee also agreed to review the issue of Self Storage facilities on U.S. Military Bases which will be taken up at the next business meeting in October.In regards to the revised standards of the ADA of 1990, the CCIM Institute submitted comments to the U.S. Department of Justice in support of the interests of the commercial real estate industry. For more information on the above CCIM Institute statements of policy, please contact the Legislative Liaison at 312-329-6033. Chair Stephanie Short, CCIM, led the committee through various objectives, one of which was a discussion on Tenants in Common (TICs) elaborated by Mark Macek, CCIM, who is the Chair of the NAR Legislation and Regulatory Subcommittee. Also, Chuck Achilles, IREM VP of Legislation and Research further briefed members on 1031 Like Kind Exchanges in conjunction with Macek’s comments on TICs. As a final note from the committee, a workgroup was established to lead a Commercial Hill Visit Day in 2006 with the support of NAR as headed by Cynthia Shelton, CCIM. The Institute will inform members of the progress and decisions by this workgroup as details become available. State Banking ActivityOn May 24, NAR testified before the Federal Insurance Investments Corps (FDIC) in opposition to a petition asking the FDIC to preempt state laws to allow state banks to operate nationally under the jurisdiction of their home states.In response to the Financial Services Roundtable petition, NAR urged the FDIC to reject the statement for the following reasons: 1. It would harm the ability of states to protect their citizens; 2. Result in undue concentration of banking services and fewer choices for consumers; 3. Open the door to the mixing of banking and commerce; 4. Undermine the state banking system; and 5. Disrupt the competitive balance among financial service providers. If FDIC grants the requests of the proposed regulations stated in the petition, then state banks would be allowed to extend their activity authority (including real estate brokerage authority) onto other states. The Institute along with NAR strongly opposes any regulation to permit banks or bank holding companies or subsidiaries to enter the field of property management and real estate brokerage beyond properties owned by these institutions. 2005 Capitol Hill Visit DayOn April 20th, around 320 members of the CCIM Institute, IREM and the REALTORS® Commercial Alliance participated in the 2005 Capitol Hill Visit Day event lobbying on behalf of the commercial real estate industry. Members voiced our industry’s concerns on Banks in Real Estate, Small Business Health Plans, Terrorism Insurance, Real Estate Mortgage Investment Conduits (REMIC) and Tax Reform in over 215 separate meetings with U.S. Senators and Representatives.Thanks to our members’ hard work and dedication throughout the years lobbying on behalf of the commercial real estate community, Congress recently passed legislation in our favor reforming bankruptcy and class action suits (tort reform). Members thanked legislators for their support and key votes in making these victories a reality during this visit. The day of the Hill Visit, NAR President Al Mansell testified before the Senate Small Business Committee in support of the creation of the Small Business Health Fairness Act, S. 406. His testimony gave the Committee important statistics that showed the high level of public opinion in favor of the legislation. Several Hill Visit participants attended the hearing to support Pres. Mansell. The Legislator of the Year Award was presented to Representative Ken Calvert, a small business owner in the restaurant and real estate industries, who represents the 44th Congressional District of southern California. Based on Calvert’s extensive voting record and long-standing support of the real estate industry, he was chosen as the award recipient. Rep. Calvert is a champion in the House for keeping the Banks out of Real Estate brokerage and property management. The CCIM Institute, IREM, and NAR leadership and the California delegation presented Rep. Calvert the award on the steps of the Capitol. To view photos visit: http://www.irem.org/images/publicpolicy/caphill05/index.htm. For more information on the Capitol Hill Visit, go to: http://www.ccim.com/members/govaffairs/capitol_hill.html. Hill Visit ResultsAs a direct outcome of the hard work and lobbying efforts of Hill Visit participants, CCIM, IREM, and RCA have succeeded in getting several U.S. Senators and Representatives to support their legislative advocacies by co-sponsoring the bills Hill Visit participants lobbied for on the Hill.Members, armed with detailed voting records created by legislative staff, thanked their legislators at their meetings if they were previously added as a co-sponsor. Legislators were asked by members from their districts to become co-sponsors of legislation the CCIM Institute supports. For two weeks after the Capitol Hill Visit Day, legislative staff kept track of which legislators became co-sponsors of bills the CCIM Institute supports after meeting with Hill Visit participants. As a result of the 215 meetings scheduled on April 20, 2005 on Capitol Hill, there are now:
Those sponsors are in addition to existing sponsors. Forced Access Legislative and Regulatory SummaryForced Access to property by telecommunications companies is strongly opposed by the CCIM Institute and the Real Access Alliance. Over 30 states have debated the issue; only Massachusetts adopted such a proposal before it was rejected by the state’s Supreme Court. Members of the CCIM Institute, in association with the Real Access Alliance (RAA), have worked hard this legislative session to defeat proposals in Arizona, Florida, Mississippi, South Carolina, North Carolina, New Mexico, and Rhode Island.The Mississippi Public Service Commission commenced a regulatory proceeding very similar in nature to that of the North Carolina Public Utility Commission. The CCIM Institute, IREM and the RAA filed in the docket. Public hearings were held on May 3, 2005 and May 4, 2005 in Jackson, Mississippi; the lobbyist for the RAA and a CPM testified in opposition to the proposal. The CCIM Institute will continue to work with members in Mississippi and the RAA to lobby against the proposal. In Florida, SB 762 seeks to provide that landlords of all types of commercial real estate including multi-family residential would have to grant access to any and all providers who wish to provide telecommunications access to their properties if the provider meets certain criteria. The bill was originally introduced January 14, 2005 and was referred to committee soon after. CCIM Institute members as well as RAA participants worked to defeat SB 762. Members lobbied against the legislation meeting with state senators. Calls to Action were issued by the Institute and other organizations in the RAA, launching a letter writing campaign. As a result of their hard work and determination, the bill did not pass out of committee in April and it died in committee on May 6, 2005 when the Florida State Legislature adjourned for the year. 2005 CCIM Institute Legislative Affairs Subcommittee Leadership Chair, Stephanie Short, CCIM Vice Chair, Lou Nimkoff, CCIM CCIM Institute Legislative Staff Charles Achilles, IREM VP Legislation & Research, 312-329-6020, cachille@irem.org Vijay Yadlapati, CCIM Legislative Liaison, 312-329-6033, vyadlapati@ccim.com back to the top ^ |