HAS DODD-FRANK MOVED MY CHEESE?BY KEVIN W. HARDIN - Page 14

A R I Z O N A R E A L T O R®
M A G A Z I N E 1
4 Legal Hotline
8 REALTORS®
“Ring” in $200,000 for Charity
9 Dynamics in Housing Demand:
A Look at Gen X and Gen Y Buyers
14 Has Dodd-Frank Moved My Cheese?
18 Homeowners Protection Signed Into Law
19 Lori Doerfler Elected Treasurer
A A R U P D A T E S
11 President Obama Signs Flood
Insurance Bill Into Law
11 RAPAC Major Investors Spend
One-On-One Time with Legislators
I N T H I S I S S U E
Questions or Comments: editor@aaronline.com
Excluding author photos (or if otherwise indicated),
images are © iStockphoto LP.
A P R I L 2 0 1 4 V O L U M E 3 6 | I S S U E 4
Remembering
James “Jim” Brodie
Page 12
Page 6
H E A R T B L E E D
AAR Members
Encouraged to
Change Passwords

A P R I L 2 0 1 42
APRIL IS FAIR HOUSING MONTH
THE REALTOR®
COMMITMENT
TO A MARKET FREE OF
DISCRIMINATION
Over 100 years ago, in furtherance of its commitment to
business integrity and fair dealing, the National Association
of REALTORS®
(NAR) adopted its Code of Ethics. The Code
of Ethics defines, guides, and regulates the professional
conduct of REALTORS®
and demonstrates REALTORS’®
level
of commitment, emphasis on education and dedication to
their profession. The Arizona Association of REALTORS®
(AAR) is responsible for enforcing the Code of Ethics.
Among the core principles of the code is a promise
to provide equal professional service to all clients
and customers. Article 10 of the Code of Ethics
therefore prohibits REALTORS®
from discriminating
practices and requires that equal professional
services be provided to all individuals as part of
a REALTOR’S®
commitment to fair housing.
Because NAR firmly believes in equal opportunities in
housing, in November 2010, NAR’s Board of Directors
passed an amendment to Article 10 of the Code of
Ethics prohibiting members from discriminating on
the basis of sexual orientation. While the inclusion of
sexual orientation was intended to be all-encompassing,
NAR ultimately decided to add “gender identity” as a
definitional clarification. Effective January 2014, Article
10 of the Code of Ethics therefore reads as follows:
REALTORS®
shall not deny equal professional
services to any person for reasons of race, color,
religion, sex, handicap, familial status, national
origin, sexual orientation, or gender identity.
REALTORS®
shall not be parties to any plan or
agreement to discriminate against a person or
persons on the basis of race, color, religion, sex,
handicap, familial status, national origin, sexual
orientation or gender identity. (Amended 1/14)
REALTORS®
, in their real estate employment
practices, shall not discriminate against any person
or persons on the basis of race, color, religion, sex,
handicap, familial status, national origin, sexual
orientation, or gender identity. (Amended 1/14)

M A G A Z I N E 3
Moreover, Standard of Practice 10-3
was amended as follows:
REALTORS®
shall not print, display or circulate
any statement or advertisement with respect
to selling or renting of a property that indicates
any preference, limitations or discrimination
based on race, color, religion, sex, handicap,
familial status, national origin sexual
orientation, or gender identity. (Adopted 1/94,
Renumbered 1/05 and 1/06, Amended 1/14)
The 2014 amendment to Article 10 therefore not
only reaffirms NAR’s and AAR’s commitment to
fair housing, it is also a reflection of our collective
commitment to a market free of discrimination. i
Visit this article on AARonline.com — comment with your
thoughts & share to your social networks.
Fair Housing Resources
from NAR
April 2014 marks the 46th anniversary of
the 1968 landmark Fair Housing Act. Each
year REALTORS®
recognize the significance
of this event and reconfirm our commitment
to upholding fair housing law as well as our
commitment to offering equal professional
service to all in their search for real property.
View Resources Online
http://www.realtor.org/programs/fair-housing-program

A P R I L 2 0 1 44
BY MACK, WATSON & STRATMAN
Copyright © 2014, all rights reserved.
The following is for informational purposes only and is not
intended as definitive legal or tax advice. You should not act upon
this information without seeking independent legal counsel. If
you desire legal, tax or other professional advice, please contact
your attorney, tax advisor or other professional consultant.
Q&As are not “black and white,” so experienced attorneys
and brokers may disagree. Agents are advised to talk to
their brokers/managers when they have questions.
Licensee Must Disclose Felony
ISSUE:
Is a real estate licensee required to disclose to the Arizona
Department of Real Estate (ADRE) a felony guilty plea?
ANS WER :
Yes. Pursuant to A.R.S. § 32-2153, the ADRE may
sanction a licensee, deny a license renewal or deny an
original license application if, among many others, the
licensee or applicant has been convicted of a felony or
of any crime of forgery, theft, extortion, conspiracy to
defraud, a crime of moral turpitude, or any other like
offense, been guilty of fraud or dishonest dealings or
not shown that the licensee or applicant is a person
of honesty, truthfulness and good character.
The disciplinary actions disclosure is required by the
ADRE to determine qualifications and suitability of the
licensee to hold an Arizona Real Estate License. Under
A.A.C. R4-28-301(F), a licensee, including the broker,
must report to the ADRE within 10 days any convictions,
judgments or adverse actions relating to, among others:
(1) misdemeanor or felony conviction, deferral of judgment
or sentencing; and (2) order, judgment or adverse decision
involving fraud or dishonesty or involving a real estate
transaction. A plea of guilty with regard to a felony is
a deferral of judgment. Here, the real estate licensee
pled guilty to a felony. As such, the real estate licensee
(and his or her broker) is required to make a disciplinary
action disclosure within 10 days of such guilty plea. i
Arizona REALTOR®
Magazine — April 2014
Brokerage
http://www.aaronline.com/legal-hotline-q-a-brokerage
A Title Company May Pay Commission
Directly To An Agent With Proper
Assignment From The Brokerage
ISSUE:
Can a broker instruct the escrow company to pay the
commission directly to the buyer, who is also a licensed real
estate agent, or alternatively, instruct that the commission
be applied toward the buyer/agent’s down payment?
ANS WER :
Probably. A.R.S. § 32-2155(A), among other things, requires
a licensee to receive commissions only from their broker
and also requires a broker to pay commissions only to real
estate licensees. However, there are a limited number of
exceptions to A.R.S. § 32-2155(A). For instance, if the broker
is entitled to the commission, the broker is allowed to assign
the commission directly to the agent, and the commission
can be paid by the escrow company to the agent at closing.
See ADRE Substantive Policy Statement 2005.08. i
Arizona REALTOR®
Commissions
http://www.aaronline.com/legal-hotline-q-a-commissions
Dodd-Frank Financing Restrictions
Do Not Apply To Investors Who
Do Not Reside At The Property
ISSUE:
Do the seller financing provisions of the Dodd Frank
Act apply to transactions in which the purchaser is an
investor and will not be residing at the property?
ANS WER :
No. The seller financing provisions of the Dodd Frank Act
apply to “consumer credit transactions,” not business credit

M A G A Z I N E 5
ABOUT THE AUTHOR
Richard V. Mack
Richard V. Mack is a shareholder at Mack, Watson & Stratman, which provides the AAR Legal Hotline
service. He is a State Bar of Arizona Board Certified Real Estate Specialist and AV rated by Martindale
Hubbell. He has also been designated as a Southwest Super Lawyer. Mr. Mack practices commercial
litigation with an emphasis on real estate litigation. He is admitted to practice in the state and federal
courts of Arizona and before the 9th Circuit Court of Appeals. Mr. Mack graduated Magna Cum
Laude from Southwestern College in Winfield, Kansas with a Bachelor of Business Administration,
with an emphasis in economics, and received his Juris Doctor from the University of Arizona.
http://www.mackwatsonstratman.com
transactions. Comment four to 12 CFR § 1026.3(a) states
that “credit extended to acquire, improve, or maintain
rental property (regardless of the number of housing units)
that is not owner-occupied is deemed to be for business
purposes. This includes, for example, a single-family house
that will be rented to another person to live in.” Note: If
the owner expects to occupy the property for more
than 14 days during the coming year, the property
cannot be considered non-owner-occupied. i
Arizona REALTOR®
Financing
http://www.aaronline.com/legal-hotline-q-a-financing
Professional Office Building Owner and
Tenant Are Obligated To Make Public
Restrooms Wheelchair Accessible
FAC TS:
The commercial office building was constructed in 1960. The
building has multiple offices and rents office space to various
types of business. The owner/landlord (Landlord) recently
rented office space to a tenant who operates a professional
services business (Tenant) and who happens to have a disabled
employee that requires the use of a wheelchair (Employee).
The door to the office bathroom is only 24-inches wide. In
this regard, the Employee’s wheelchair will not fit through the
bathroom door and the Employee cannot access the bathroom.
ISSUE:
Must the Landlord and/or Tenant alter the bathroom so
that it is accessible to a disabled person in a wheelchair?
ANS WER :
Yes. Title III of the Americans with Disabilities Act
(ADA) covers, in pertinent part, “places of public
accommodation” and “commercial facilities” and
extends to private entities. See 28 CFR § 36.101, et al.
Pertinent here, places of public accommodation are
facilities whose operations affect commerce and include
various categories enumerated under the ADA. Of
these categories, service establishments such as offices
of accountants and lawyers, insurance offices, and
professional offices of health care providers are included.
According to the ADA, both the Landlord and the Tenant
have full responsibility for complying with all of the
Title III requirements applicable to that place of public
accommodation, i.e., the Tenant’s office. The Title III
regulation permits the Landlord and the Tenant to allocate
responsibility in the lease for complying with particular
provisions of the regulation. However, any allocation made
in a lease or other contract is only effective as between the
parties, and both the Landlord and the Tenant remain fully
liable for compliance with all provisions of the ADA relating to
that place of public accommodation.
Read More Legal Hotline Q&As on AARonline:
www.aaronline.com/manage-risk/legal-hotline
Have you signed up
for the Legal Hotline?
The Legal Hotline provides all AAR broker members
(designated REALTORS®
) free access to a qualified
attorney who can provide information on real estate
law and related matters.
FIND OUT HOW BROKERS CAN
ACCESS THE LEGAL HOTLINE
www.aaronline.com/wp-content/uploads/2013/08/3-
Legal-Hotline-Access-Process-fillable.pdf
BROWSE MORE LEGAL HOTLINE TOPICS ONLINE
www.aaronline.com/manage-risk/legal-hotline
WANT
MOREQ&A?

A P R I L 2 0 1 46
LEGAL HOTLINE | CONTINUED
Title III of the ADA prohibits discrimination against any
individual with a disability. Accordingly, individuals with
disabilities may not be denied full and equal enjoyment
of the goods, services, facilities, privileges, advantages,
or accommodations offered by a place of public
accommodation.
Under Title III, architectural barriers must be removed when
it is “readily achievable” to do so. According to the ADA,
architectural barriers are physical elements of a facility that
impede access by people with disabilities. Determining if
barrier removal is readily achievable is necessarily a case-by-
case judgment under Title III. However, the ADA presumes
that “widening doors” is readily achievable. That being
said, in this case, it would likely be found that widening the
bathroom door to accommodate the Employee’s wheelchair
would be readily achievable. Therefore, the Landlord and the
Tenant are responsible for accommodating the Employee by
widening the bathroom door for wheelchair accessibility.
Note: This does not address Title I of the ADA dealing with an
employer’s obligations to a disabled employee with respect to
making accommodations, as this would be outside the scope of
the AAR Legal Hotline. i
Arizona REALTOR®
Fair Housing
http://www.aaronline.com/legal-hotline-q-a-fair-housing
Seller Bears Risk of Loss During Escrow
FAC TS:
Thebrokeragerepresentsboththebuyerandseller.Theparties’
contractprovidesthat$15,000ofearnestmoneybecomesnon-
refundableaftertheacceptanceoftheBuyer’sInspectionNotice
andSeller’sResponse,whichhasalreadyoccurred.
ISSUE:
If the property experiences a complete loss (i.e., is destroyed
by fire) prior to the close of escrow, will the buyer be entitled
to a return of the non-refundable earnest money deposit?
ANS WER :
Probably. Under the terms of the AAR’s Residential Resale Real
Estate Purchase Contract (the Contract), the risk of loss during
the escrow period is on the seller, and either party may elect
to cancel the Contract if the cost to repair the damage exceeds
10 percent of the purchase price. While this provision does
not speak directly to the return of earnest money (particularly
when it is deemed non-refundable), the fact that the risk of loss
is placed on the seller is significant. Under general equitable
principles, it is likely that a court would hold that rescission is
appropriate and that the parties should be returned to the
status quo ante, meaning that the earnest money deposit
would likely be refunded to the buyer. i
Arizona REALTOR®
Contracts (General)
http://www.aaronline.com/legal-hotline-q-a-contracts-general/
AAR MEMBERS ENCOURAGED
TO CHANGE PASSWORDS
AAR members may have heard of a recently discovered
Internet security issue — called Heartbleed – that impacted
many websites on the internet, including AAR’s websites
www.aaronline.com, blog.aaronline.com, azgri.com and
reteach.us. Rest assured, AAR was quick to fix the issue on
all of our sites and no passwords were compromised.
http://heartbleed.com/?e_t=1811b06c187243db8787de3ac5282701&utm_
medium=2000&utm_source=31&e_t_s=body
To be extra careful, we’re strongly encouraging you to reset
your password, not only on AAR’s website, but also on any of
these sites you may have accounts with.
RESET PASSWORD
http://www.aaronline.com/login/forgot-password/
When you pick a new password remember to make it complex
(by adding special characters and/or numbers) and unique
(don’t use it on any other sites). i
Visit this article on AARonline.com — comment with
your thoughts & share to your social networks.

M A G A Z I N E 7
LEGAL HOTLINE | CONTINUED
Property Manager Is Not Required
To Hold Pre-Paid Rent
FAC TS:
The brokerage represents the landlord. The
tenant has requested to pre-pay all rents
at the beginning of the lease term.
ISSUE:
Can the brokerage deliver the pre-paid rent to the landlord,
or must the brokerage hold the money in trust in the
event the landlord breaches its obligations under the lease
(i.e., the property is foreclosed during the lease term)?
ANS WER :
A property manager does not have an obligation to
hold pre-paid rent in trust in the event the landlord
breaches the lease. A landlord is entitled to demand the
rental funds when they are received (less any property
management fees), regardless of whether the tenant
pays on a monthly basis or in advance. Lines 63-64 of
the AAR Property Management Agreement provide,
for example, that “Broker shall not disburse tenant’s
refundable security deposits, prepaid rent or other prepaid
funds to Owner until earned, unless instructed otherwise
by Owner.” If, however, the broker retains the pre-paid
rent, it must be held in the broker’s trust account. i
Arizona REALTOR®
Landlord/Tenant
http://www.aaronline.com/legal-hotline-q-a-landlordtenant
AAR Delivers Important Resources
to Help Our Members Succeed
As a member of the Arizona Association of REALTORS®
,
you have many resources available to you to help
you grow your business and manage your risk. Take
a look at all the resources provided to you by AAR.
Read it now online!
http://aar.uberflip.com/i/291717
THE NEW MEMBER RESOURCES GUIDE

A P R I L 2 0 1 48
REALTORS®
“RING” IN
$200,000 FOR CHARITY
Editor’s Note: In 2014, AAR will be featuring
Arizona REALTORS®
who rock – specifically
when it comes to serving their
community! These REALTORS®
have thrown caution and
selfishness to the wind – and their
communities are better because of it.
Do you know a REALTOR®
that rocks? Let us
know. Send us an email at editor@aaronline.com.
According to the Salvation Army, Wednesday is the most
difficult day to find volunteers to help collect donations
during the holidays. It’s so hard, in fact, that The Salvation
Army actually pays people to man the red kettles, taking
money away from those that need it most. When JoAnn
and Joseph Callaway learned this, they did something
about it. Last year, the Callaways assembled 1,096 of
their closest real estate industry friends, along with local
Salvation Army volunteer coordinators, to ring the
bells at red kettle locations every Wednesday
during December. REALTORS®
, loan
officers, escrow offices and
title companies came together
and kept the bells ringing for more
than 180 kettles during December.
These volunteers raised more than $117,000
and saved the Salvation Army $85,000 in
expenses – an impact totaling more than $200,000.
A big thank you to all who volunteered!
If you’d like to get involved with The Salvation Army,
visit http://www.salvationarmyusa.org/usn/volunteer i
Joseph and JoAnn Callaway
(“Those Callaways”)

M A G A Z I N E 9
Continued
DYNAMICS IN HOUSING DEMAND:
A Look at Gen X and Gen Y Buyers
BY RON LAMEE, SVP RESEARCH AND MEMBER VALUE ARIZONA ASSOCIATION OF REALTORS®
Slow demand continues to keep Maricopa County real estate
in a buyer’s market, with the Cromford Market Index holding
around 84. Stories of lower-than-normal demand are coming
in from other parts of the state as well. This month, we
look for clues about reasons for low demand in NAR’s 2014
Home Buyer and Seller Generational Trends. U.S. consumers in
their mid-30s and younger historically make up the largest
group of first-time home buyers; consumers in their 40s
and 50s tend to be repeat buyers. But, lately these two
groups have been shying away from homeownership. In
a weak jobs market, strapped with hefty financial loans,
some Gen X and Gen Y buyers simply can’t afford to buy.
According to NAR’s generational study, 56 percent
of Gen Y homebuyers (under 34 years) stated that
student loans delayed saving for their purchase.
Forty-six percent of Gen X (age 34-54 years) cited
large credit card debt as the barrier to saving.
To give you an indication of how serious student
loan and credit card debt is in the U.S., the New York
Federal Reserve recently released these figures for
outstanding U.S. consumer debt for Q4 2013:
NAR, 2014 Home Buyer and Seller Generational Trends
TOP 3 FACTORS DELAYING SAVING FOR A HOME PURCHASE

A P R I L 2 0 1 410
MORTGAGE DEBT $8.05 TRILLION
STUDENT LOAN DEBT $1.08 TRILLION
AUTO LOAN DEBT $863 BILLION
CREDIT CARD DEBT $683 BILLION
HELOC $529 BILLION
NY Federal Reserve Report, 2/18/14
http://www.newyorkfed.org/newsevents/news/research/2014/rp140218.html
While debt has been growing, real income has been
dropping—major declines can be seen across all age
groups under age 65 since the late 90s. With higher down
payment requirements, the ability to save has impacted
first-time homebuyers and also repeat homebuyers.
To add to their woes, many repeat homebuyers must
contend with having homes underwater. According to
NAR’s study, one in five Gen X had a previous home that
was financially underwater and they couldn’t sell when
they wanted to. This all supports what numerous analysts
are saying: the combination of debt, flat wages and low
credit scores are impacting demand for housing.
While this sounds a little pessimistic, it’s not all doom and
gloom. Affordability remains positive at 122.8, meaning a
U.S. family with median income buying a median-priced
home has 122.8 percent of the income needed. After rising
quickly in 2011, home prices have been fairly flat for nearly
a year as have mortgage rates. Affordability for first-time
homebuyers is a dozen points lower but still above 100.
In addition, the “desire to own a home of my own” is
especially strong among Gen Y. In fact, 49 percent gave
that as their primary reason for buying a home. That said,
it’s important to note that desiring a home is different
from taking necessary steps to buy one—NAR’s study only
considers those who made the commitment, not those
on the sidelines. Of those who have purchased a home,
91 percent of Gen Ys purchased their home through a
real estate agent, slightly more than buyers as a whole.
Gen Y tends to be very satisfied with their agent with 88
percent valuing their agent’s honesty and integrity and 88
percent valuing their agent’s knowledge of the process.
Debt and low credit scores seem to be negative influences
on home purchase among Gen Y and Gen X. While
flat or declining real income is a concern, stable home
prices and mortgage rates are positive influences. i
Sources/additional reading:
NAR, 2014 Home Buyer and Seller Generational Trends.
Doug Short, Real Income Decreases
http://www.advisorperspectives.com/dshort/updates/
Household-Incomes-by-Age-Brackets.php
NAR, Monthly Housing Affordability Index
http://www.realtor.org/topics/housing-affordability-index/data
Cromford Report
http://cromfordreport.com/
DYNAMICS IN HOUSING DEMAND | CONTINUED
ABOUT THE AUTHOR
Ron LaMee
Ron is the Senior Vice President of Research and Member
Value for the Arizona Association of REALTORS(R).

M A G A Z I N E 11
AAR UPDATES
PRESIDENT OBAMA SIGNS FLOOD
INSURANCE BILL INTO LAW
On March 21, 2014, President Obama signed the
“Homeowner Flood Insurance Affordability Act” into
law. This law repeals FEMA’s authority to increase
premium rates at time of sale or new flood map,
and refunds the excessive premium to those who
bought a property before FEMA warned them of
the rate increase. The bill limits premium increases
to 18 percent annually on newer properties and
25 percent for some older ones. Additionally,
the bill adds a small assessment on policies until
everyone is paying full cost for flood insurance. i
For more information, watch this video from NAR:
RAPAC MAJOR INVESTORS SPEND
ONE-ON-ONE TIME WITH LEGISLATORS
http://www.realtor.org/videos/help-passed-on-flood-insurance-ratesVisit this article on AARonline.com — comment with
Recently, AAR members attended several events where they had one-on-
one time with legislators. On Monday, March 17, RAPAC Major Investors
and members of the associations Legislative Committees spent an
intimate evening at the Phoenix Art Museum with members of the Arizona
Senate and House of Representatives. Legislators in attendance included
Senators Andrea Dalessandro and Barbara McGuire and Representatives
John Kavanagh, Jeff Dial, and Warren Petersen, among others.
On Friday, March 21, AAR joined the Arizona Multihousing Association,
Arizona Rock Products Association, Home Builders Association of
Central Arizona, NAIOP, Rose Law Group and SAHBA, in hosting a
Republican Gubernatorial Candidate forum. This event featured
Republican Gubernatorial primary candidates: Ken Bennett, Doug
Ducey, Christine Jones, Scott Smith, Al Melvin and Frank Riggs. i
See all the photos here:
https://www.flickr.com/photos/aar_eventrewind/sets/72157640074671176/

A P R I L 2 0 1 412
REMEMBERING
JAMES “JIM” BRODIE
James “Jim” Brodie, 84, of Green Valley,
died Tuesday, March 11, 2014.
Jim, also known as “Sarge”, was an active member
of the REALTOR®
family, joining in 1991. In 1999, Jim
served as the AAR president – the same year that AAR
CEO Michelle Lind joined the organization as general
counsel. He was a master jeweler and handcrafted
thousands of RAPAC pins over the years.
Jim is survived by his wife and business partner, Sandy
Brodie. A memorial is planned for later this year.
Dave Hollingsworth, who served as AAR president in 2000,
said, “I, after being ‘gently’ prodded by Sarge, agreed to
follow him from our two years of service as RVPs through
the chairs at AAR. His vision was clear then, and even more
so today, that the members in Arizona deserved to have
the leadership of AAR come to them at least annually to ask
how we could better improve the state association. Address
their local association needs and listen to their requests
to improve their individual businesses. We all learned
volumes from Jim Brodie, and he will be sorely missed.”
John Foltz, who preceded Jim in 1998 as president of
AAR said, “Jim Brodie had a way of grounding all of us in
the absolute patriotism of supporting home ownership.
His service to our country was carried directly over
to his service to the homeowners and REALTORS®
he touched. Simplicity and honor in ideas that made
a contribution to us all and to me, personally.”
AAR Senior Vice President of Research and Member Value
Ron LaMee said, “Jim initiated the use of customized, Arizona
RAPAC pins to reward donors at various levels. His efforts
put a new emphasis and energy in RAPAC that continues
today. He was also dedicated to improving agents’ skills and
frequently taught classes in Green Valley and Tucson.”
Craig Sanford, a long-time friend, said, “Jim taught me
that the value of leadership was not only what you
did today but what you did today for tomorrow.”
AAR Manager, Risk Management Jan Steward said, “The
year Jim was president of AAR, I was President of Northern
Arizona Association of REALTORS®
. Early in his Presidency,
Jim came by to visit with me and needless to say, I was very
impressed that he was visiting local associations throughout
Arizona. Jim said he was reaching out to AAR’s members
to see how leadership could better improve the state
association. In addition to Jim’s questions the day we met, he
presented me with my RAPAC pin, which he created himself,
and an authentic Indian Head penny. Jim gave me the penny
and told a story about his friend who had cancer. His friend
went to the reservation and asked to have the pennies
blessed. Jim was given the pennies by his friend to pass-on
to others, to help them as well. To this day, I still have the
Indian Head penny and RAPAC pin Jim presented me with
as well as my memories of an impressive AAR leader.” i

M A G A Z I N E 13
Major AAR Accomplishments
During Jim Brodie’s Presidency
• Purchased and moved into 28,000
square foot headquarters
• Added full-time lobbyist, Governmental Programs
Director and General Counsel (attorney) positions.
• Attained the highest membership total ever: 22,948
• Increased participation in the pressXpress™ (400
document fax-on-demand service) by 26 percent
• Partnered with the Mortgage Lenders Association
and the Arizona Escrow Association for
successful “Partners In Profit” conference.
• REALTORS®
of Arizona Political Action
Committee (RAPAC) raised highest-ever
total contributions of $79,340.
• Developed and implemented REALTORS of
Arizona Legislative Link (RALLi™) through the
Association’s web site (AARonline.com).
• Developed and implemented a local lobbying
training program called “Silver Bullet Session”
• Developed and made available a Buyer/Seller Inspection
Form through the standard forms inventory.
• The Association had legislative successes by: 1)
defeating a bill that would have expanded new
ordinance and regulatory authority governing land
transactions in unincorporated areas; 2) supported
bill that granted licensing exemptions for corporations
selling their own property and closes any window for
non-licensed marketplace activity; 3) passed statute
change to protect registered professionals (including
real estate licensees) from claims related to expert
testimony; 4) passed provision that closed a loop that
would allow buyer or renter to rescind transaction
if certain exempted disclosures were not made; 5)
making several changes to “Slumlord” Bill to make
passage more palatable for real estate community.
• Developed first online, email-based
education course (AAR Contract).
• Partnered with Timeless Technology to offer hands-on
computer training programs through local associations.
• Coordinated 74 Graduate REALTORS®
Institute
modules statewide with 211 members
receiving their GRI designation and 569
new members entering the program.
Feel free to share your memories of
Jim in the comment area online.
TK

A P R I L 2 0 1 414
HAS DODD-FRANK
MOVED MY CHEESE?
BY KEVIN W. HARDIN, JD, CMB, CMC, CMPS & KEVIN FALLON MCCARTHY, ESQ.
OVERVIEW
This article is an in-depth look at the Seller Carryback
Financing components of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (Dodd-Frank Act). In it, the
authors detail the issues a seller must be aware of before
completing a carryback financing transaction. These include:
• Understanding what properties are covered
by the Secure and Fair Enforcement for
Mortgage Licensing Act (SAFE);
• The two exemptions available for sellers and real estate
agents: the One in One Year Rule, wherein financing
is provided for one property in a 12-month period and
the Three in One Year Rule wherein the seller finances
three or fewer properties in any 12-month period.
• The role of licensed real estate agents and
brokers in these transactions. Specifically, what
actions cross the line between performing
a sale and becoming a loan originator.
ARTICLE
For the last year, the real estate industry has been up in arms
over the new Consumer Financial Protection Bureau (CFPB)
rules that took effect on January 10, 2014. As a law firm
representing homeowners, we often become involved in real
estate transactions when the borrower has ceased making
payments on his or her mortgage, either due to their inability
to pay or a reasoned decision to not pay the debt. The seller/
lender has exercised its remedies under the default language
in the Deed of Trust or other consensual security instrument
and has filed a Notice of Sale / Default. Often, the borrower
will walk into our offices enraged. “They are taking my home
away!” The borrower wants to know his or her rights and
what can be done to keep the home. Typically, the first thing a
borrower wants to know is if the borrower can sue the seller/
lender? It is through this filter that we begin our discussion.
RESIDENTIAL MORTGAGE TRANSACTION
When a seller lends money to a buyer for the purchase
of real property, it becomes a residential mortgage
transaction. “Residential mortgage loan” means “any
loan primarily for personal, family, or household use
that is secured by a mortgage, deed of trust, or other
equivalent consensual security interest on a dwelling
(as defined in section 103(v) of the Truth in Lending Act)
or residential real estate upon which is constructed or
intended to be constructed a dwelling (as so defined).” 1
The first step is to identify what kind of buyer/borrower the
rule applies to. The relevant sections of the rules are for
a consumer credit transaction. “Consumer credit means
credit offered or extended to a consumer primarily for
personal, family, or household purposes.” 2
This definition
certainly means a property that the buyer or family of
buyer is going to occupy in whole or in part, now or later.
Recently, we have heard stories of some real estate
professionals encouraging sellers to instruct the buyer/
borrower to form a limited liability corporation (LLC) or some
other entity and then lend to them to avoid the definition
of a consumer. The first thing out of a buyer/borrower’s
mouth is going to be “They told me to form an LLC to buy
the home so they could avoid the rule.” It will not be difficult
to show this particular type of possible fraud. What if the
buyer/borrower lies before the transaction closes? He says,
“I am buying this property as an investment,” but moves
into the home as his primary residence on Day One? Would
some covenant against occupancy become necessary?
These are among the issues a seller must be aware of
before completing a carryback financing transaction.
What kind of property is covered by the Secure and Fair
Enforcement for Mortgage Licensing Act (SAFE)? SAFE
covers a one- to four-family dwelling. Financing for business,
for property for investment purposes, or an extension of
credit to other than a natural person are not covered by
this rule. There are also many other exemptions including,
without limitation, agricultural, foreign property, commercial
property, lots and raw land. It is wise to seek legal counsel in
situations in which the property is not easily categorized.

M A G A Z I N E 15
WHO IS A LOAN ORIGINATOR?
“(a) Definitions. (1) Loan originator. (i) For purposes of this
section, the term “loan originator” means a person who,
in expectation of direct or indirect compensation or other
monetary gain or for direct or indirect compensation
or other monetary gain, performs any of the following
activities: takes an application, offers, arranges, assists a
consumer in obtaining or applying to obtain, negotiates,
or otherwise obtains or makes an extension of consumer
credit for another person; or through advertising or other
means of communication represents to the public that
such person can or will perform any of these activities…” 3
SELLER EXEMPTION
If a seller issues a residential mortgage to a buyer, they
may be considered a loan originator. If they are considered
a loan originator, they will be required to be licensed
under SAFE. If they are licensed under SAFE, they must
make a good faith effort to verify the borrowers’ ability to
repay the loan. In addition to the seller, certain activities
of a licensed Arizona real estate agent may also subject
him or her to being considered a mortgage originator.
When the rule first appeared in January of 2013, it
essentially took seller financing out of the market. By
November of 2013, the final revisions to the rule were
made that resulted in clear exemptions for sellers and
real estate agents in a seller carryback transaction. First,
sellers can take advantage of either of two exemptions.
One is the so-called “One in One Year Rule” and the
other is known as the “Three in One Year Rule”. 4
One in One Year Rule. The seller must be a natural person,
estate or trust and provides financing for only one property
in any 12-month period. This does not mean a land trust
with 20 investors; it means a trust for family tax planning.
The seller will not be considered a loan originator if:
• You provide seller financing for only one
property in any 12-month period
• You owned the property securing the financing
• You did not construct, or act as a contractor
for the construction of, a residence on the
property in your ordinary course of business.
• The financing must meet the following requirements:
• Have a repayment schedule that does
not result in negative amortization
• Have a fixed rate or an adjustable rate
that resets after five or more years. These
rate adjustments may be subject to
reasonable annual and lifetime limits. 5
One of the drawbacks of this exemption is the one-
year look back. If the seller has done a carryback in
the prior 12 months, the seller must wait until it has
been 12 months from recording date to recording date.
Otherwise, the seller will inadvertently violate the rule.
Was the owner of the property the same party that made
the loan? If not, no exemption exists. A seller could assume
that they are covered by the exemption as they personally
discussed the financing options and assisted the buyer
in obtaining the financing of the property, however if the
Deed of Trust or other equivalent consensual security
interest is in the name of another entity, this will result
in a violation of the exemption. To avail themselves of
the exemption, the seller must be named as the lender
or party on the deed of trust or other instrument.
The seller cannot have constructed the home or acted as
the contractor for the subject property as their ordinary
course of business. A seller’s tax return is going to be
a very clear way for a buyer to determine in a lawsuit
if the seller violated this rule if the seller treated the
construction as part of their business. Many home builders
in the last decade completed a home on spec and then,
due to the collapse of the housing market, moved into
it. This fact pattern would be an issue for the seller.
The financing cannot result in negative amortization but
can include a balloon payment. However, the seller must

A P R I L 2 0 1 416
be aware that certain prohibitions exist with loans having
terms that adjust in the first five years of the loan.
The financing can be either fixed rate or adjustable
but must not reset before five years. The index
and margins are discussed in the comments
to the regulations. See footnote 9.
Because transactions that fall into this exemption do not
require the seller to verify the buyer’s ability to repay, this
type of financing may be one of the rare types still available
to buyers who cannot show, by tax returns and other
documentation, that their income is sufficient, but otherwise
has sufficient assets and cash flow to make the payments.
Three in One Year Rule. The seller is any type of financing
entity, including a natural person, estate, trust, LLC,
partnership, or corporation and the seller finances the
sales of three or fewer properties in any 12-month period.
This seller will not be considered a loan originator if:
• You provide seller financing for three or fewer
properties in any 12-month period.
• You owned the properties securing the financing.
• You did not construct, or act as a contractor
for the construction of, a residence on the
property in your ordinary course of business.
• The financing must meet the following requirements:
• The financing must be fully amortizing.
• Have a fixed rate or an adjustable rate
that resets after five or more years. These
rate adjustments may be subject to
reasonable annual and lifetime limits. 6
• The seller must determine in good faith that the
consumer has a reasonable ability to repay the loan.
The Three in One Year Rule has the same one-year look
back aspect as the prior exemption. In addition, a one-
year look forward aspect applies to both exemptions.
If the seller finances property No.1 under the One Year
exemption and then decides to finance property No. 2
under the Three Year exemption, property No. 1 will not
be in compliance and the financing on property No. 1
will be subject to rescission. If a seller has more than one
property to sell on seller financing, the seller is going to
have follow the Three in One Year exemption on property
No.1 if they plan to sell property No. 2 within 12 months.
The rules for ownership, construction and adjustable
rates are the same as the One in One Year Rule.
The financing must be fully amortizing. This rule means
no interest-only loans and no balloon payments. In
addition, the amortization cannot be longer than 30 years
but it can be as short as the buyer can afford under the
ability to repay rule (ATR). 7
This is where things get very
difficult for the seller. How is the seller going to perform
this task without a mortgage loan originator? ATR involves
analyzing the buyer’s ability to repay in eight categories,
including, income, assets, employment, mortgage
payment, payments on loans associated with the property,
mortgage related obligations i.e. property taxes, insurance,
other debt obligations and monthly debt-to-income
ratio or residual income. Very clearly, the seller cannot
offer stated income financing under this exemption.
Although the rules do not require the seller to maintain
documentation, what seller would offer seller financing
without looking at the buyer’s financial information? Use
of third party information providers is acceptable. If the
time comes when a buyer takes their seller to court, the
burden is going to be on the seller to show that they made
a good faith effort to review the buyer’s ability to repay.
Specifically, the buyer is going to allege the loan is predatory
because it violates the rule: the buyer did not have enough
residual income left to meet living expenses after paying
their mortgage and other debts. How is the seller to do this?
More pointedly, how is the seller going to do this without
an attorney or a mortgage loan officer? Seeing the need
for assistance, a few law firms and mortgage companies
have begun to offer seller carryback services to protect
the seller from the issues surrounding the ATR rule.
INTEREST RATE
How does the seller determine the interest rate? If the
interest rate on the seller financing exceeds the limits as
set forth under the Home Ownership Equity Protection
Act (HOEPA), the seller will lose the protection of the
exemptions described above. HOEPA sets those limits at
an APR of 6.5 percent above average prime offered rate for
first mortgages and an APR of 8.5 percent above average
prime offered rate for subordinate mortgages. 8
Therefore,
HAS DODD-FRANK MOVED MY CHEESE? | CONTINUED

M A G A Z I N E 17
the seller must verify the average prime offered rate at
the time of funding of the seller financing transaction.
REAL ESTATE AGENT EXEMPTION
The term loan originator does not include “A person
that performs only real estate brokerage activities and
is licensed or registered in accordance with applicable
State law, unless such person is compensated by a
creditor or loan originator or by any agent of such
creditor or loan originator for a particular consumer
credit transaction subject to this section.” 9
The question becomes: is the licensed real estate agent or
broker performing only real estate or brokerage activities in
accordance with Arizona law? How does Arizona define this?
One of those definitions of allowable activity are: “incident
to the sale of real estate, businesses and business
opportunities negotiates or offers, attempts or agrees
to negotiate a loan secured or to be secured by any
mortgage or other encumbrance upon or transfer of
real estate, businesses and business opportunities or
timeshare interests subject to section 32-2155, subsection
C. This subdivision does not apply to mortgage brokers as
defined in and subject to title 6, chapter 9, article 1.” 10
Does this mean that a licensed real estate agent can draft
or prepare seller-financing documents? No. Does this
mean the licensed real estate agent can assist in collecting
documents required to perform the analysis of ATR? No.
It means the agent can attempt or agree to negotiate
the loan only. If the agent is compensated beyond their
commission for performing any activity by a creditor or
seller, the agent will be considered a loan originator.
What if the seller of the property is also a licensed real
estate agent? This will not turn the agent into a loan
originator, unless they are compensated by a creditor.
The agent/seller will be able to sell the property under the
exemption. What if the licensed real estate agent is also
a licensed mortgage loan originator? The agent will then
have to comply with the relevant regulations under the
federal and state laws as required for a loan originator.
Finally, questions will arise concerning the servicing
of the loan. On January 10, 2014, the CFPB made
effective additional final rules on mortgage servicing.
This article will not go into detail on these rules,
but suffice it to say, they are complicated enough
that seller should be wary of any attempt to service
their seller-financing arrangement personally.
These new rules, while being very detailed and complicated,
are designed to protect the consumer. It is not CFPB’s goal
to limit lending and real estate sales opportunities. It is the
goal to protect consumers and ensure that all parties to a
real estate transaction are properly licensed and regulated
to accomplish this. If at any time any party is in doubt
as to the applicability of the regulations to a particular
transaction, they should seek appropriate legal counsel. i
No content provided in this article should be taken as
legal opinion or advice for an individual situation or case.
By viewing the information in this article, you are not
creating an attorney-client relationship and while we make
every effort to make sure the information in this article is
accurate, we cannot guarantee the accuracy and are not
responsible for any errors or omissions or inaccuracies.
ABOUT THE AUTHOR S
Kevin Hardin
Kevin W. Hardin is the director of the Mortgage Mediation Group at the law firm
of McCarthy Law PLC. He holds the Certified Mortgage Banker (CMB) designation
from the Mortgage Bankers Association and the Certified Mortgage Consultant
Designation (CMC) from the National Association of Mortgage Brokers. Both
designations are the highest academic designations of both associations. He has
a Bachelors of Science from New Mexico State University and a Juris Doctor from
Concord School of Law. Kevin.Hardin@McCarthyLawyer.com 888-909-1030
Kevin McCarthy
Kevin Fallon McCarthy Esq. is the Managing Partner of McCarthy Law PLC. Mr. McCarthy
graduated magna cum laude from the Sandra Day O’Connor College of Law in 1986
and received his B.S.B.A. with an emphasis in Accounting from Creighton University.
McCarthy Law PLC is an Arizona-based law firm focused negotiating large reductions in their
clients’ debts without the need for bankruptcy. The firm helps families who are struggling with
debt, including credit card debt, medical debt and student loan debt. The Mortgage Mediation
Group at McCarthy Law PLC is a practice group within the firm focused on mortgage
regulatory and statutory issues. This practice group assists homeowners with California
Homeowner Bill of Rights claims, wrongful foreclosure, foreclosure defense, short sale, loan
modification, mortgage deficiency defense, mortgage settlement and seller carryback services.
HAS DODD-FRANK MOVED MY CHEESE? | CONTINUED
FOOTNOTES:
1 Title 24 Part 3400 Sub
Part A, §3400.23
2 12 CFR § 1026.2 (12)
3 12 CFR § 1026.36 (a)
4 12 CFR § 1026.36
(a)(4) and (5)
5 see comments 36(a)
(4)-2 and 36(a)(5)-1
6 see comments 36(a)
(4)-2 and 36(a)(5)-1
7 12 CFR § 1026.43(c)
8 12 CFR §§ 1026.31,
1026.32 and 1026.34
9 12 CFR § 1026.36 (a) (C)
10 A.R.S. 32-2101 (48)(k)

A P R I L 2 0 1 418
www.aaronline.com/azre-book
HOMEOWNER
PROTECTIONS
SIGNED INTO LAW
A major victory for the Arizona Association of
REALTORS®
(AAR) was achieved on April 17,
2014, when Governor Jan Brewer signed SB
1482 homeowners’ association amendments
omnibus into law. This bill reintroduced protections
for homeowners and tenants against homeowners
associations which was passed by the legislature and
signed by the governor last year, but ultimately challenged
in court based on the “single subject rule” of the
constitution. As a result of the constitutional challenge,
HOAs were left with no restrictions on what documents
they could require of a tenant and no limit on what could
be charged for the collection of these documents.
Over the course of the last year, AAR continued to hear
from our membership and the public on the escalating
efforts by HOAs to interfere in private contracts and
profit off these efforts. Some community associations
sought to obtain inappropriate information from tenants,
such as a copy of the tenant’s rental application, credit
report, lease agreement, and social security number.
To make matters worse, these associations charged the
tenants unreasonable fees to process this information.
As a result, the association actively pursued the
establishment of restrictions on the information that can
be requested and the amount that can be charged.
Pursuant to SB1482, homeowners associations will now be
limited as to what information they can seek to obtain from
tenants. Additionally, the association will be precluded from
charging more than $25 to process this documentation.
After many attempts to get this legislation to the finish line,
Governor Brewer’s signature solidified the multi-year effort
to establish protections for homeowners and tenants. SB
1482 contained a general effective date and will become
effective 90-days after the legislature adjourns. i
For more information on the bill, please visit:
http://www.azleg.gov/DocumentsForBill.
asp?Bill_Number=1482&Session_Id=112

M A G A Z I N E 19
LORI DOERFLER
ELECTED 2015
AAR TREASURER
Lori Doerfler, ABR CRS GRI, was elected 2015 AAR Treasurer at
LORI WILL BE SERVING AS TREASURER IN 2015 WITH LINE OFFICERS:
President – Jim Sexton | President-Elect – Paula Serven | Vice President – Paula Monthofer
the Board of Director’s meeting on Friday, April 18. Lori
has been serving on AAR committees since 2006 and has
been involved in the association in the following roles:
2010 – Present Executive Committee
2010 – Present Finance Committee
2010 - 2013 Region 1 Vice President
2007 - Present Director
2013 Chair, Professional
Business Development Committee
2013 Chair, RAPAC Trustees
2012 Chair, REALTOR®
Issues
and Mobilization Committee
2007 - Present Professional Standards Committee
2011 Member, Risk Management Committee
2010 Member, Statewide MLS Task Force
2008 - 2009 Member, Business and
Information Technology Committee
2005 - 2006 Member, GRI Workgroup
2006 Graduate,
Leadership Training Academy
Congratulations, Lori!

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