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The Act was signed into law by President Bush on October 3. This summary, provided by NAR, uses some general subject headings to illustrate the many pro-taxpayer and pro-borrower provisions in the bill, as well as to showcase the provisions that encourage banks to work more closely with borrowers in foreclosures and short sales.

Help Homeowners and Borrowers: The law responds to criticisms that lenders have been slow and/or unwilling to work with homeowners and borrowers, by encouraging negotiation in short sales and consumer efforts to refinance or reconfigure existing mortgages:

• When the Treasury (or other federal agency that holds mortgages) acquires troubled existing mortgages from financial institutions, agencies are required to work with lenders and mortgage servicers to find ways to avoid foreclosures.
• All federal agencies are required to work with servicers to facilitate loan modifications that will consider the net present value of the mortgage.
• Similar refinancing and foreclosure prevention requirements apply to mortgages involving owners of multi-family properties and owners of commercial properties. The policy goal is to assure that tenants don’t lose their residence or their place of business when an owner has problems with the mortgage.
• Changes to existing mortgages can include (but are not limited to) revisions in principal, interest rate and period for repayment.

Tax Relief: The law provides extensions of expired and expiring provisions in tax law, including the 15-year life on leasehold improvements; brownfields clean-up deductions; deductions for mortgage insurance premiums; and relief from the Alternative Minimum Tax.

Get Money into the Financial System Quickly: With credit markets nearly frozen, and lenders unable to make loan because they are receiving no payments on many existing loans, the new law allows the government to buy troubled loans and mortgage securities. The funds that institutions receive when the government purchases existing portfolios are to be available to issue new mortgages, with more carefully specified and monitored lending standards. Provisions include:

• A Troubled Asset Relief Program (TARP) to purchase and guarantee troubled assets from financial institutions that hold mortgages and/or mortgage-backed securities.
• A new Office of Financial Stability within the Treasury to operate TARP, with input from the Federal Reserve, Federal Deposit Insurance Corp (FDIC), the agency that works with failed and failing financial institutions to insure and protect consumers, the Comptroller of the Currency (bank regulator), Office of Thrift Supervision (regulator of former savings and loan companies) and the Secretary of Housing and Urban Development.
• Measured use of funds. First release of funds to purchase troubled assets will be $250 Billion. Second release of up to $100 Billion must be authorized by the President. Final $350 Billion can be issued only on Congressional approval. Congress is given 15 days to act.

Follow, Protect and Watch Over the Money: Congress will keep a tight rein on TARP, with the assistance of numerous agencies charged with specific tasks and reporting responsibilities:

• TARP Oversight Board at Treasury -- monthly activity reports to Congress.
• Secretary of Treasury -- detailed reports to Congress for each $50 Billion in transactions.
• Government Accountability Office (Congress’s auditor) must provide financial reports about TARP activities every 60 days.
• Judicial Review -- Federal courts may issue injunctions when there is a finding that the Secretary of the Treasury has acted in a manner that is arbitrary, capricious or outside the law.
• Create a new Inspector General (IG) for TARP. An IG is essentially the “cop on duty” who has authority to investigate TARP’s activities. The IG will make quarterly reports to Congress.
• Appoint a Congressional Oversight Panel to receive and process all these reports and keep Congress apprised of the state of financial markets, activities of the regulatory system and the use of TARP’s asset acquisition and disposition authority.
• Federal Reserve will provide reports to Congress on using the lending authority created earlier this year. That authority was intended to assist ailing financial institutions.

Put Brakes on the Bad Guys: Congress wanted to curtail “bad acts” of executives who gambled and lost.

• Assure that skilled asset managers who buy and sell TARP assets have no conflicts of interest with prior employers or firms.
• No golden parachute or severance payments to executives of companies that sell assets to TARP. An executive who receives a parachute payment will be required to pay a 20% excise tax on it.
• No tax deductions allowed for any executive’s compensation of more than $500,000.
• All financial regulatory agencies must cooperate with the FBI in its investigations of fraud, misrepresentation or malfeasance in the selling or advertising of financial products.

Give the Taxpayers a Stake in the Profits: Historically, when the government has intervened to shore up a company’s or government’s financial dealings (such as the loan guarantees made to Chrysler and the aid given to New York City during a fiscal crisis), the long-term effect has been that the government has made money. The new law provides an “upside” benefit for taxpayers:

• Any profits generated when the government subsequently sells TARP assets will be used to pay down the national debt.
• The government will receive warrants in the companies that participate in TARP. Warrants are similar to stock, but do not grant any voting authority to the government. If the participating company pays dividends at some future time, the warrants would allow the government to receive the dividend. Similarly, if the government sells its stake in the company, the warrants would entitle it to any appreciation.

Safeguard Savings: The law increases the amount of federal insurance on bank accounts from $100,000 to $250,000. This will be particularly helpful to smaller and local banks and small businesses.

Recoup What’s Still Owed: If, after five years from the date of enactment (the date the President signed the bill), the program has lost money, the sitting President will be required to present a plan to Congress for ways to recover the funds from the financial institutions that benefited from the TARP relief.

posted @ Monday, October 06, 2008 2:35 PM

Nunez v. J.L. Sims Co. Inc., 2003

No knowledge means no liability

An Ohio appellate court has ruled that sellers and their sales associates who were both unaware of the presence of lead-based paint in a home weren't liable for negligence in failing to tell buyers about the paint. Six months after Liz and Jamie Nunez purchased a home, they discovered that their children had elevated lead levels in their blood. The Cincinnati Health Department tested their home and discovered it contained lead-based paint. Under Ohio law, the buyers were required to abate the lead-based paint in the home.

The buyers sued the sellers and the two sales associates, a team acting as disclosed dual agents, claiming they had knowingly violated the federal Residential Lead-Based Paint Hazard Reduction Act of 1992. The act requires that property owners or their agents in transactions involving homes built prior to 1978 disclose any known lead-based paint on the premises and provide a pamphlet describing the risks of on lead-based paint hazards to prospective buyers and renters. The Nunezes also charged the licensees with negligent misrepresentation, alleging that one of the sales associates had told them it was "a waste of time" to have the property inspected since the sellers had no plans to put money into the property.

First, the trial court and then the appeals court rejected these charges and found for the sellers and the licensees. The courts determined that because neither the sellers nor the licensees had any knowledge of lead-based paint in the house and no affirmative duty to discover the presence of the hazard, they weren't guilty of failing to disclose that information and thus violating the act. The federal law doesn't place any duty on homeowners or salespeople to discover the presence of lead-based paint, only to disclose it if the presence is known. The court also noted that the buyers had signed documents during the transaction acknowledging that they understood the potential risks of exposure to lead, understood they had the right to test the property for lead, and chose not to have the property inspected.

Next the courts considered the negligent misrepresentation charge against the licensees. Negligent misrepresentation occurs when individuals, in the course of their business, knowingly supply false information with the intent to deceive. These false statements must be material to the transaction and must be justifiably relied on by a third party. Finally, acting on the false statement must cause damages to the third party in order for the statement to be considered negligent misrepresentation.

Here the court found that the licensees' statement that an inspection would be "a waste of time" didn't provide false information about the property. The sales associates said that they'd made the statement only to indicate that the sellers wouldn't make alterations to the property and were unwilling to lower the price or make repairs to the property. In addition, the court noted that the buyers had been given the opportunity to have the property inspected and declined to do so.

Source: NAR Realtor.org Law and Policy

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