Legal/Legislative Update – February 16, 2015

Published on: February 16, 2015

DRONES TAKING FLIGHT.    The Federal Aviation Administration (FAA) has issued proposed regulations governing drones, opening the door to some commercial uses (including those sought by real estate brokers) but leaving it closed, for now to the air-borne delivery services that Google, Amazon (and probably pizza franchises, as well) would like to launch. The proposed rules would not require drone operators to obtain pilots’ licenses, as some had feared, but would require them to pass a safety test , keep their drones in sight (without binoculars) , fly them no faster than 100 miles per hour and no higher than 500 feet, and avoid flying them over people other than the drone operator.

“We have tried to be flexible in writing these rules,” FAA Administrator Michael Huerta said in a press statement. “We want to maintain today’s outstanding level of aviation safety without placing an undue regulatory burden on an emerging industry.”

The rules cover commercial uses of drones only; they won’t affect recreational uses – for now. But FAA officials indicated that they may adopt additional rules covering small drones used by hobbyists – like the one that landed recently on the White House lawn.

Brian Wynn, CEO of the Association for Unmanned Vehicle Systems International (a trade group representing drone manufacturers) said the rules represent “a good first step in an evolutionary process.”

The National Association of Realtors also welcomed the rules as “good news for property owners and Realtors who desire to embrace cutting-edge technology to enhance the process of buying and selling real estate with images gathered by unmanned aerial vehicles.” But the trade group also cautioned members that existing rules still require an exemption to photograph properties. Publication of the proposed rules and the request for public comment on them begins a regulatory review process that government officials say could take at least two years.

A GOOD REPORT.    The big news this month was the labor market report, and the news was very good. Employers added 257,000 jobs in January — a little below the sizzling pace registered in November and December. The totals for both months were revised upward, adding nearly 150,000 jobs to their totals. Bottom line: The economy produced nearly one million jobs in the final quarter of last year, representing the best three-month performance since 1997. Employment gains for the year were higher than in any year since 1999. The unemployment rate inched up a little, from 5.6 percent to 5.7 percent. But that was good news, too, because it wasn’t additional layoffs that caused the increase; it was a jump in the number of people looking for work, which boosted the size of the work force by about 700,000.

HOME SALES REBOUNDING.   Sales of new homes rebounded smartly in December after sinking in November) for the second consecutive month) to the lowest level since July of last year. December sales by contrast, came in at a seasonally adjusted annual rate of 481,000 units – nearly 9 percent above the year-ago level and the highest level in the past seven years.

“After a slow start to 2014 precipitated by bad weather conditions, new home sales have ramped up in the second half of the year,” David Crowe, chief economist of the National Association of Home Builders, said. He predicts that the momentum reflected in the December stats will continue this year “with the release of pent-up demand, particularly as existing home owners are trading up.”

Some industry analysts suggested that applause might be premature. The Census Department, they note, has revised its initial sales estimates downward every month since last May.

WHAT ABOUT HOUSING?   President Obama covered a lot of domestic and foreign policy ground in his state-of-the-union address, but one topic was conspicuously absent: Housing. The President referred to housing policy only indirectly and briefly, when he noted his administration’s belief that “sensible regulations could prevent another crisis,” and said that “things like lower mortgage premiums and a higher minimum wage…. will make a difference in the lives of millions of families.”

Analysts said the omission indicates the extent to which housing has been demoted on the list of government priorities. “In the good news economy, housing is the laggard,” Susan Wachter, professor of real estate and finance at The Wharton School of the University of Pennsylvania, told MarketWatch. “Housing and the rebuilding of the broken housing finance system is the unfinished business with no easy answer, not even a prescription that Democrats can get together on. This is why housing, despite its importance to the economy, did not feature in the [President’s] address.”

READY TO RETURN.    RealtyTrac estimates that over the next 8 years, an estimated 7.3 million former homeowners who lost their homes to foreclosure during the housing bust will become “boomerang buyers,” ready and able to enter the housing market again. These recovered homeowners represent “a massive wave of potential pent-up demand that could shape the housing market in the short term even more dramatically” than the millennials’ have done thus far, the report suggests. Some analysts are still counting on the millenials, however. A recent survey of more than 1,000 ‘twenty- and thirty-somethings’ who don’t currently own homes found that more than one-third hope to enter the market within the next five years. All they lack, according to this analysis, is sufficient income to do so. “Our survey confirms income is a key to opening the doors of homeownership for Millennials and they’re more than committed to it; they’re actively planning for it,” said Anthony Hsieh, chairman and chief executive officer of Loan Depot, which commissioned the survey. “Their strong desire to become homeowners, coupled with the commitment of getting their finances in order, suggests a renewal in first-time buyer demand may be possible if we sustain the necessary economic and market conditions.”

E-RECORDING ADVANCES.   More than two-thirds of the 3,600 counties responsible for recording mortgage documents nationally are now able to handle that process electronically. And much of that progress has come in the last two years, according to the Property Records industry Association (PRIA), which reports “a significant boost” in the number of offices using technology to streamline their operations and increase their efficiency. The consumer Financial Protection Bureau’s emphasis on electronic closing procedures as a means of improving the home purchase experience for consumers is likely to accelerate this trend, industry executives agree.

“An important part of improving the consumer experience at the closing table is to ensure documents are recorded efficiently and without delay,” Diane Evans, president of the American Land Title Association, told Mortgage Orb. “Electronic recording helps local title companies address ALTA’s best practice guidelines that call for timely recording of documents and tracking document rejections and re-submissions,” she added.

LEGAL BRIEF

AMBIGUITY DEFEATS COVENANTS.   Restrictive covenants running with the land must be construed strictly to favor unrestricted use of the property; ambiguous covenants must be construed in favor of the party harmed by them. Those legal precepts defeated a homeowner association’s effort to regulate landscape design changes sought by an owner in a Florida case (Lenard Bendo v. Silver Woods Community Association) decided recently by the District Court of Appeal.

The homeowner (Bendo) sought approval of a plan to redesign his landscape to repair extensive damage caused by the installation of a new septic drain field. The board approved the “hardscape” changes (including the addition of a retaining wall), but rejected the “softscape” provisions, because they did not include a grass lawn. The trial court agreed with the association that the “plain language” of the covenants required approval of the plan. But the appeals court found that the language was ambiguous, at best, and so had to be construed in favor of the owner.

The covenants state: No building, fence, wall or other structure shall be commenced, erected or maintained upon the Property, nor shall any exterior addition to or change or alteration therein be made” without the written approval of the board affirming that the changes are consistent with the “harmony of external design and location in relation to surrounding structures and topography.”

The interpretation of that language hung on the word “therein.” The association argued that it referred to the property. Based on that reading, the “soft” components of the landscape design were subject to board approval, because they involve changes to the property. The owner contended that “therein” referred not to the property, but to the “building, fence, wall or other structure,” putting the soft changes outside the board’s purview. The Appeals Court agreed.

“It appears to us that the word “property” in the first part of the sentence is merely a reference to the land upon which the “building, fence, wall or other structure” is erected or maintained. It is only when additions or alterations are made to these structural components of the property that approval must be obtained.”

The association’s reading would produce an “illogical result,” the court said: Although [the board] would have no authority to approve the nonstructural aspects of a landscape design upon initial installation, it would have authority to approve additions and alterations. We fail to see how this accomplishes [the association’s] avowed objective of maintaining uniformity in the neighborhood.”

The homeowner’s interpretation is logical, the court said, because if the board has the authority to approve the design of buildings, fences, walls and other structures, “it makes sense that it should also have the authority to approve additions, changes or alterations to those structures. In construing a covenant such as this, we are obligated to reach a construction that “comports with logic and reason,” the court added.

Even if that reading of the covenant isn’t correct, the court said, “it is, at a minimum, a reasonable construction of an ambiguous covenant. Accordingly, we are obligated to construe it most favorably to Appellant.”

WORTH QUOTING:

“There’s more downside risk to messing with GSEs right now than benefit.” ─ Scott Buchta, head of fixed income strategy at Brean Capital, predicting that Congress is unlikely to tackle housing finance reform by overhauling Fannie Mae and Freddie Mac any time soon.