Compliance Costs Likely to Increase Closing Costs
A compliance cost is defined as the expenditure of time or money to conform with government requirements such as legislation or regulation. Such costs include all expenditures necessary to obey the law, including planning and administration, in addition to the direct time and money spent on things like preparing and filing paperwork.
In the residential lending and settlement arena, new regulations implemented by the Consumer Finance Protection Bureau have significantly increased the compliance costs of lenders and other lending related service providers. These costs have come in the form of the addition of staff to review and implement the new rules, the development of software to prepare the newly required documentation, the cost of training staff to know and understand the new systems and processes, and the cost of proving that they are compliant with the new rules, just to name a few. What else could happen when the government issues a 1,900 page rule that imposes penalties of up to $1,000,000.00 for a single violation and gives consumers a civil right of action for violations of the regulations?
Earlier this week, the Mortgage Bankers Association put out some comparison data indicating that the costs to originate a loan are significantly higher than they were a few years ago. In particular, their analysts compared the cost to originate a loan in the fourth quarter of 2012 to the first quarter of 2015. These two periods were used because the volume of loans originated in those time periods was similar. What did their comparison show? It cost about $1,600.00 more to originate a loan in 2015 than it did in 2012. Their analysts were quick to note that many factors could be impacting this number, not just the cost of compliance. Notwithstanding, there's no denying that lenders and other settlement services providers have expended, and will continue to expend, significant sums of money to comply with these new regulations.
Someone has to pay these costs. Likely some of it will be passed on to the consumer. Just weeks after implementation there are reports that such additional expenses are being incurred. In particular, many consumers are choosing to incur additional origination costs as a result of locking their loan for a longer period of time. Consumers believe these longer locks are necessary because of the likelihood that the new regulations will increase processing times on their loans. They are likely right.
This doesn't mean that prices are going to go crazy. Lending and settlement are still highly competitive industries and that competition will stop prices from going too high. It will also force those in the industry to find new ways to be more efficient and decrease costs in other areas. As such, consumers should continue to shop the market and actively compare loan programs to find the best fit for their circumstances to minimize the impact of these costs on their bottom line.
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Case of the Month
Save Mount Diablo v. Contra Costa County et al.
Ronald and Shirley Nunn bought a 586 acre tract of agricultural property in Contra Costa County in 2006. Originally one contiguous parcel, prior to the Nunns' acquisition, portions of the property were taken as part of an eminent domain action for the construction of a dam. As a result of that action, the property is physically divided into four, unequal sized quarters by strips of land owned by the Contra Costa Water District. The deed transferring the property to the Nunns describes it as a single parcel, defined by metes and bounds, with District-owned land excluded.
In 2008, the Nunns applied to the County of Contra Costa for a parcel map to subdivide the property into four lots and one remainder parcel. Save Mount Diablo, a nonprofit corporation, raised a number of objections to the Nunns' application based on concerns with the environmental impact of potential new development. Before completing the parcel map process, the Nunns abandoned their application. Instead, they asked the County to issue a Certificate of Compliance for each of the property's four parts, affirming that the four physically separated pieces were each a legally separate parcel as a result of the physical division of the property via the taking by the government. Contra Costa County issued the Certificate of Compliance. Save Mount Diablo filed a petition for writ of mandate against the County, seeking an order requiring the County to set aside the Certificate. The trial court granted Save Mount Diablo's petition, finding that no legal subdivision occurred as a result of the physical division of the land. The Nunns appealed.
The Appellate Court affirmed the trial court's ruling, finding that a legal subdivision of a property does not occur simply because an eminent domain proceeding results in a physical separation of a property's non-condemned portions. Instead, a parcel of land can be considered a single parcel, even if all of the parts of the property do not touch. This rule is delineated in Government Code section 66424, which states
"[p]roperty shall be considered as contiguous units, even if it is separated by roads, streets, utility easement, or railroad
rights-of-way." As such, the physical division of the Nunn property was not a legal subdivision and it is legally still one parcel despite the physical separation.
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Weeds Not Protected As Free Speech
Many cities have ordinances that require property owners to control the weeds on their property or face fines. Proponents of these types of regulations argue that they are needed for: the prevention of serious fire hazards, the removal of obstructions that interfere with streets and sidewalks, the prevention of noxious weed infestation, and neighborhood preservation. Weeds tend to overgrow or choke out more desirable plants such as crops, flower gardens and groundcover, and may become detrimental to public health.
The city of Chicago has such an ordinance which states that "any person who owns or controls property within the city must cut or otherwise control all weeds on such property so that the average height of such weeds does not exceed ten inches. Any person who violates this subsection shall be subject to a fine of not less than $600 nor more than $1,200." It also states that "each day such violation continues shall constitute a separate and distinct offense to which a separate fine shall apply." Municipal Code of Chicago ยง 7-28-120(a).
The owners of the Discount Inn in Chicago challenged the ordinance in Federal Court after being fined for violating it more than 20 times. Their argument, the weeds are protected as an expressive right under the First Amendment of the United States Constitution. In fact, they took the position that their property was not covered with weeds that should be abated but with native plants, which are beautiful and nondestructive when properly managed.
The court, in a humorous opinion, upheld the ordinance, finding that there is a legitimate governmental interest in weed abatement. As such, weed abatement requirements will continue until further notice.
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CEA Conference
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RELAW, APC was proud to be an exhibitor at the 60
th
Annual Educational Conference for the California Escrow Association. It was a great event and all in attendance received valuable information that they could take back to their office for implementation.
Jennifer Felten, Esq., was also honored to be a speaker at the event. She participated in a panel discussion on Social Media that gave attendees an insight into the legal risks associated with having a social media presence.
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