Upcoming workshop on recent changes to DC’s TOPA law

Upcoming workshop on recent changes to DC’s TOPA law

Did you know TOPA was amended as of July 3?

The DC Department of Housing and Community Development will hold a workshop in a couple weeks to provide an overview of the newly enacted Single-Family Home Exemption Amendment Act of 2018 (Bill 22-0315, Act 22-339).

The workshop will take place Wednesday, July 25 from 1 to 3 p.m. at One Judiciary Square, located at 441 4th Street NW, Old Council Chamber Room, Washington, DC 20002. The workshop is free but you must register to attend.

For those who cannot attend in person, the DHCD Facebook page will also broadcast the workshop live.

The workshop will cover a variety of topics including:

  • Types of single family properties that are exempt
  • Criteria that an elderly or disabled tenant must meet to still have a limited opportunity to purchase
  • Notice and documentation requirements

Assignment of TOPA rights (Tenant's Opportunity to Purchase Act): Q&A

Assignment of TOPA rights (Tenant's Opportunity to Purchase Act): Q&A

Q: Can TOPA rights be assigned without a contract?

A: With our without a contract, TOPA rights can be assigned.

Q: How much (consideration) does the landlord/owner need to pay the Tenant to make the assignment valid?

A: Most title insurance underwriters agree that there must be at least $300.00 of consideration which can be in the form of rent abatement/waiver, moving expenses, or cash payment.

Q: What forms must be provided to the tenant prior to the existence of a contract?

A: The landlord/owner must provide TOPA Form B by certified mail before tenant signs the agreement to assign. Because the rights of first refusal will be assigned concurrently with the rights to purchase, it is not necessary to provide Form C.

Q: What forms must be provided to the tenant with the existence of a contract?

A: The landlord/owner must provide TOPA Form A by certified mail before tenant signs the agreement to assign.

Q: Once the Assignment is signed by both landlord/owner and tenant, is there a waiting period before settlement can occur?

A: No. However, do note that either Form A or Form B must be sent by certified mail in order to satisfy the legal requirements such that the rights become legally assignable.

Assignment OF TOPA Rights vs. TOPA Affidavit

I am often asked which is preferable – Assignment of TOPA Rights or a TOPA Affidavit? 

The answer is it depends on multiple factors i.e. is Owner/Seller/Landlord willing to pay consideration to a tenant; is there a ratified contract; how much time is there before settlement; etc.

Assignment

TOPA rights can be assigned with or without a contract – there must be consideration of at least $300 per current underwriting guidelines and this consideration can be in the form of cash, forgiven rent, waiver of rent, moving expenses, etc. If the rights are to be assigned before there is a contract, the agent must send out TOPA Form B via certified mail prior to the tenant signing the Assignment.  Form C will not be necessary, as the rights of first refusal will be assigned at the same time as the rights to purchase. If there is a contract, the agent must send out TOPA Form A via certified mail prior to the tenant signing the Assignment. 

Please note NOTICE either FORM A or FORM B MUST BE SENT VIA CERTIFIED MAIL TO MEET THE STATUTORY GUIDELINES AND TRIGGER THE RIGHTS SO THEY ARE ASSIGNABLE. Once the Assignment is fully executed, settlement can happen immediately – no waiting period.

Affidavit

If the agent wants to use the Affidavit, the appropriate TOPA forms must be sent via certified mail.  Ideally, the Affidavit should be signed after the 45 day period (30 days right to purchase plus 15 days right of first refusal). In most cases, the tenant will sign the Affidavit prior to the conclusion of the waiting period, but the 45 day period must pass. The reason an underwriter requires the 45 day period to pass is the affidavit is “retractable”; in other words, the tenant is allowed to change his or her mind making the affidavit no good. 

In addition, when an affidavit is used; the title company will need to get a Review of File Letter issued from the District (DCHD) prior to settlement. The Review of File letter will confirm there was not Notice of Intent to Purchase filed with the District and solidifies tenant’s intent – to purchase or not purchase.  This closes the underwriting loop and allows settlement to happen.

What’s the status on B21-0417, aka The First-time Homebuyer Tax Benefit Amendment Act of 2015?

Legislation that would offer tax relief for District residents buying DC real estate is currently under committee review and awaiting scheduling for a mark-up, a spokeswoman for the Council's Committee on Finance and Revenue said.

Known as the First-time Homebuyer Tax Benefit Amendment Act of 2015 (B21-0417), the bill would create a new transfer tax rate of 0.725% for homebuyers who have never purchased a house, condo or share in a cooperative unit in the District. It would go into effect Sept. 30, 2016.

During mark-up, which is a vote in the Committee to send the bill before the whole Council, the Committee will have an opportunity to amend the bill (or not) and will also have a chance to review a financial impact statement to analyze costs and revenues of the proposed legislation.

If the bill passes mark-up, it will go to Mayor Muriel Bowser for a signature before going to Congress for review and passive approval. If it fails mark-up, the bill will get kicked to the Committee of the Whole and added to the agenda for the next legislative meeting.

Impact on low- to moderate-income residents a concern

The Council held a public hearing about the bill on February 10 of this year, which is when Settlement Observer picked up on the story. Then on February 24 a representative from the DC Fiscal Policy Institute testified before the Committee about concerns regarding a lack of income restrictions and the impact the tax cut would have on the city’s Housing Production Trust Fund.

“Rather than provide a new tax benefit for all first-time homebuyers, DCFPI recommends that policymakers review the city’s current deed tax assistance to low- and moderate-income homebuyers and make adjustments if they appear warranted,” said DCFPI Housing Policy Associate Claire Zippel in her testimony.

The bill was introduced last October by councilmembers Jack Evans (D-Ward 2), David Grosso (I-At Large) and Anita Bonds (D-At Large).

Grosso acknowledged concerns regarding the economic impact of lowering the transfer tax rate across the board and, in particular, how such a deduction would affect the Trust Fund.

“I am committed to working with my colleagues to ensure that the [Trust Fund] receives annual commitments so that it is not dependent on yearly fluctuations in recordation tax revenues,” Grosso said in a statement.

Mayor Bowser’s budget proposal last year included $100 million for the Trust Fund in fiscal year 2016, according to the website of the Coalition for Nonprofit Housing & Economic Development. The Trust Fund is administered by the DC Department of Housing and Community Development with support from the Coalition.

The Trust Fund “enables non-profit housing providers, mission-driven for-profit developers and renters wishing to exercise their Tenant Opportunity to Purchase rights to improve and develop affordable housing in all eight wards,” according to the Coalition’s website.

Since its inception in 2002, The Trust Fund has produced or preserved more than 8,000 affordable homes with upward of 2,000 more in the pipeline, according to the Coalition’s website. In addition the Trust Fund has created an estimated 10,000 short-term and permanent jobs and has helped more than 18,000 DC residents.

The District's homebuying taxes significantly higher than Maryland or Virginia, about 50% higher on average

Current DC transfer and recordation taxes are on average 50% higher than neighboring Maryland and Virginia, Grosso said in a statement, which was the impetus for introducing a bill that would lower the tax burden for homebuyers purchasing for the first time in the District.

Transfer tax rates for District properties vary depending on the purchase price, from 1.1% for purchases $399,999 and below to 1.45% for purchases of $400,000 or more. The tax payment is traditionally paid by both the buyer and seller.

The DC tax abatement program offers relief for some, but homebuyers must satisfy income, purchase price and other restrictions and provide documentation to qualify.

Tax abatement waives the recordation tax obligation for low- to moderate-income first-time homebuyers while also crediting the seller’s portion of the tax to the homebuyer, resulting in a 2.2% swing in favor of the homebuyer. In addition, a qualifying homebuyer is exempt from paying property taxes for the first five years of ownership, but again some restrictions apply.

“If policymakers are concerned that the current deed tax assistance programs are inadequate, the District should look to modify existing programs while keeping a focus on low- and moderate-income families, rather than adopt another tax break that has no income targeting,” Zippel, the housing policy associate, said in her testimony.

We will continue to monitor the story, and readers can also follow along on the Council's website.

Did you know? Tenant Opportunity to Purchase Act in Takoma Park, Maryland

If you have been involved in real estate in the DC metro area you have likely come across the DC Tenant Opportunity to Purchase Act. But did you know that Takoma Park, Maryland also has a Tenant Opportunity to Purchase Act ("TOPA")?

The intent of TOPA is to promote the conversion of rentals to owner-occupied housing. Not complying with TOPA does leave the possibility that a court of competent jurisdiction may declare the transfer of the property void.  

As with DC, there are exceptions to the tenant opportunity to purchase. Some transfers that are exempt include transfers to a family member, transfers under a court order, transfers to the State or a local government and transfers of a minority title interest.  For a complete list of exempt transfers, please visit Section 6.32.020 of the City of Takoma Park Municipal Code.   

As the title company, Federal Title will require proof that the seller delivered a written offer of sale at the same price and terms as the third party contract of sale to each tenant, any registered  tenant association, and the City of Takoma Park by first class mail or personal delivery and, except for single family homes, that the offer was posted in a common area.  

For single family homes, the tenant has seven days from the date of receipt of the written offer of sale to provide a written statement of interest, and the City of Takoma Park has 14 days. For properties with two to six units, a group of tenants acting jointly have 14 days, then seven additional days for any individual tenant, then seven more days for the City.  

For properties with seven or more units, a registered tenant association representing at least one-third of the occupied rental units in the rental facility and the City of Takoma Park each have 45 days. (Please note that properties involving four or more units in Takoma Park will also need to comply with Montgomery County’s Right of First Refusal laws).

Similar to DC’s TOPA laws, a tenant does have the right to waive the rights but only if supported by consideration. Also, the closing must take place within 6 months of the offer of sale being mailed or personally delivered. Federal Title will additionally require that both the purchaser and the seller sign a TOPA affidavit. 

This is just a summary of the City of Takoma Park TOPA laws, but the full text can be found at Chapter 6.32 Tenant Opportunity to Purchase.

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