All scenarios deduced based on the draft COPA/TOPA Ordinance as published in EPA City Council Agenda Packet 8.1.a from 11/14/2021 and updated with the Revised Ordinance as published in EPA City Council Agenda Packet 8.1.a from 12/4/2021. All names and personas given here are fictional and intended to illustrate likely situations that could befall EPA homeowners.
(Unchanged with any revisions to ordinance)
Kayley gets a nasty surprise, and loses more than $31,000 from her father’s estate
Mr Baker has lived in East Palo Alto for 50 years. He and his wife were proud of the single family home they bought in the Gardens where they raised their children. His wife passed away a few years back and in 2021 Mr Baker had a stroke. He was in hospital for a few weeks before he went to a rehab center to try to regain his strength. He was there for 3 months but unfortunately suffered a setback and passed away. His daughter Kayley who lives in North Carolina is the beneficiary of his will and intends to sell the home once probate is complete. By that time the property will have had nobody living in it for more than six months. Kayley has been telling her friends and family about the loss of her father and her plans to sell the property she is inheriting. She is unaware of the TOPA/COPA rules of East Palo Alto and intends to use a California-licensed realtor, a friend of a friend who is based in Fremont, to list the property. She shares a front view of the draft flyer made by her agent with her friends on Facebook.
Is the property covered under COPA/TOPA? Yes, COPA (there are no tenants). It’s a “Single-Family Dwelling without Tenants and with Absentee Owner(s)”. 14.26.020
How will Kayley’s selling agent find out that COPA/TOPA applies to this sale in order to advise her properly? [San Mateo County agents in larger brokerages and who pay attention should get bulletins from the San Mateo County Association of Realtors with local ordinance lists, but an out-of-county agent like Kayley’s may not see this.]
By telling her friends about her intent to sell the property she has inherited, has Kayley contravened the ordinance? [yes, 14.26.020, if she’s used email or social media or a video call, no if it’s only been oral communication in person and by phone]
When her agent lists the property, if Kayley doesn’t file the Notice of Intent to Sell first with the city and also send it to all the PEPs, has she contravened the ordinance? [yes 14.26.070 C]
What penalty is Kayley liable to pay? [$1,000 per day of not filing 14.26.150 C 1 - likely $30,000 in this case to represent the 30 days of notice she didn’t give - note this would have been double - $60,000 - if there had been an ADU 14.26.150 C 1]
Kayley lists the property without going through the COPA process and it gets sold to new “third-party” owners quite quickly. About 6 months later a PEP discovers the sale registered on the MLS, realizes that Kayley had not lived in the property, and sees that Kayley did not file a notice at escrow indicating she had gone through the COPA disclosures. The nonprofit flags this issue and takes action to enforce the action.
What penalty is Kayley liable to pay? $31,000 plus the enforcer’s attorney fees 14.26.150 C [Since Kayley was entirely unknowing throughout this process and was not wilfully violating, the penalty is $30,000 from the initial failure to file a Notice of Intent, then $1,000 for not filing an Owner Certification with San Mateo County Recorder’s office 14.26.150 A - since no PEP came forward to make a First Offer or exercised a Right of First Refusal there can be no violations at other steps]
How is it enforced? Any Qualified Nonprofit in the Program with the city at the time of the sale, or the City Attorney, can bring a civil penalty action against Kayley. There is no mention of any time limit on which this action could be filed so it could even happen years later. 14.26.150 B
Who is the penalty paid to? Whomever brought the action gets the penalty. So this could be whichever non-profit is faster to file. 14.26.150 B.
How much are the attorney’s fees? 14.26.150 C They must be “reasonable fees and costs”.
What happens next? The non-profit could ask the court to rescind the sale of the property. 14.26.150 C 1 The new buyer has already moved in and is living in the home. The Bakers’ mortgage has already been paid off and transfer taxes have been paid. Kayley doesn’t have the money to undo the sale. The buyer is now reaching out for his own attorney to figure out what his rights are - can he sue Kayley? Kayley flies in from North Carolina to sit down at the title company offices and determine what happens from here. She is hoping that Title Insurance - hers, or the buyer’s, may help her somehow. She wonders what her father would think of this mess.
(Updated since revision to ordinance - some offer numbers are different, some paperwork is slightly reduced and the Tenant close timeline is shorter than in the original - but it still takes sbut it still takes four and a half months! Edits in blue reflect latest Ordinance amendments as of January 2022)
Maria tries to pay her son’s College tuition but it takes
four and a half months before she can unlock the funds
It’s June 1st. Maria, who lives in another property in East Menlo Park/Belle Haven, decides to sell her single-family rental property in East Palo Alto in order to pay college tuition for her son who got into his dream school and will be starting in the fall. The property is a two-bedroom home like others she has seen in the market selling for around $900,000 - which will pay off her mortgage and provide enough extra funding for a start towards that tuition bill. She knows about TOPA/COPA and has always been a stickler for following the rules so she files all the appropriate paperwork starting with the Notice of Intent to Sell and sends it to the City and to her tenant and to a list of email addresses of non-profits published on the city website 14.26.080 A. She intends to list the property with a local agent very active in East Palo Alto and sets the date on her calendar to do that on July 1st. She feels this will give her a month for showings and a month for the purchase to close and she should have funds easily in time for the school year. She has some calls and a walkthrough with the agent to prepare.
Somewhat to her surprise, she gets an email from her tenant Tom on June 14th saying he may want to buy and on June 29th Tom submits a Statement of Interest, and on the same date she also receives a Statement of Interest from “Good Homes”, a Qualified Nonprofit. She sets to, making the disclosure package 14.26.080 C, to provide to Tom and to “Good Homes” - she needs to provide them both with all her income and expenses, insurance, utilities, maintenance and repairs. It takes some effort to assemble it all but she manages it on July 3rd (if she took longer than 5 days, she’d be in violation with a penalty of $1,000 per day). Maria looks up the Ordinance and realizes now that her Notice period has extended by another 30 days 14.26.080 D from the date she sent those disclosures, and she now cannot list the property until August 3rd. She makes a new mark on her calendar and waits to see what Tom and “Good Homes” do.
On July 14th Maria receives an offer from Tom for $820,000. It’s clear that Tom has done his best, but this is well under the price that Maria could accept for the property and wouldn’t come close to covering her mortgage and closing costs. Maria rejects the offer on the same day. There has been no offer yet from “Good Homes” so she must still wait to list the property.
It’s August 3rd and Maria can finally list the property and market it with her local East Palo Alto agent. The agent comes and puts a sign up outside the property and lists it on MLS - she can see it in the app on Redfin and it looks good! The agent says they will hold open houses this weekend and next weekend and then take offers with the intention of reviewing them on August 24th and moving to close. The paperwork from the agent is really clear that no offers under the asking price will be accepted and that no offers will be opened before end of day August 24th. It also says this on the sign. Maria can see that close could still happen by about the end of September so she should be just in time for the next school year.
It’s August 24th. 3 offers have been received! Maria’s agent opens them up and they discuss them. The offers are for $850K with a month to close, $900K in all-cash closing in 7 days, or $950K with six weeks to close. The buyers all state they want to move into the property themselves to live there and seem to have the funds needed for 3% earnest money. The first offer is putting up 20% deposit and the mortgage is provided by a local credit union where those deposit funds are sitting, the second one is a tech worker relocating for work who already sold their southern California property and she can see the funds sitting waiting to be deployed, and the third one is putting down only 10% and is funded by an internet bank Maria and her agent have never heard of, but asks to keep the furniture that is in the property. Maria feels the second offer is the one most likely to get her a sale that will be fast and feels most likely to go through so that’s the one she wants to contract with.
Maria and her agent read the Ordinance again to figure out what to do next. 14.26.100 A It seems that they must submit the Offer she intends to accept to Tom.
Meanwhile they extend counter offers to the three third-party prospective buyers asking them to go to $950K with closing in a month or better. The first bidder doesn’t bid again but on August 26th the second and third bidders meet the $950K number with 7 day close and close-in-a-month respectively. The second bidder requires the offer is accepted within 3 days, the third bidder requires it is accepted within 30 days. Maria realizes she can’t accept the offer with the 3-day expiration because it doesn’t give enough time for Tom to respond. So she accepts the third offer, conditionally on Tom not matching it.
They submit the offer terms to Tom. Maria and her agent now wait. They know they may have to wait up to 5 days, until August 31st. 14.26.100 C However, on August 30th an offer comes in from Tom, meeting the $950K offer price. Maria is shocked because she knows it’s extremely unlikely that Tom can fund this purchase - after all he offered $820K as his “first offer” and he said it was a stretch. He works at Starbucks and his family isn’t wealthy. But she examines the rules with her realtor. She’s not allowed to refuse the offer from Tom on the basis of his financial ability to perform. 14.26.110 C Tom has to have 30 days to close the transaction - so that’s until September 29th. 14.26.100 D. Maria asks her selling agent what is the earnest money Tom is putting down. The agent explains she’s only allowed to require a max of 3%, $28.5K. They put agree a loan contingency period of 10 days, matching the timing in the third party offer.
Reluctantly Maria must accept the offer from Tom even though she fears it’s not going to go well. She has her agent reject the other offers from the other qualified purchasers. The buying agents for those purchasers are frustrated by the delay. They mutter to Maria’s agent that this whole process has been a waste of their clients’ time and they will be advising their clients not to bid in East Palo Alto again.
Maria sits down with her son to explain that the funds for his tuition aren’t coming as soon as she had hoped.
On September 9th Tom reaches out to Maria. He’s failed to find financing to close on the purchase of the property and he wants his earnest money, $28.5K, back. He’s withdrawing from the contract.
Maria instructs Title to release the money and calls her agent. She needs to start again with listing and marketing the property. She has already satisfied the filing of the Notice of Intent to Sell, and gone through the First Offer and Right of First Refusal wait periods, so she can now list the property on the market to third-parties in the normal way without any further delay. 14.26.100 D She relists the property on September 10th, her agent holds one further weekend of open houses and takes offers on the property on September 17th. The property receives an offer of $930K with a 30-day close, which Maria accepts! The property is sold on October 17th. It took her four and a half months to sell it.
Note that if “Good Homes” had stepped in to make an offer instead of Tom, and had had similar issue with funding so they couldn’t close, this process could have taken an extra 50 days since the nonprofit gets up to 90 days to close, instead of 30 in Tom’s case.
(Slight adjustment to timings with January 2022 revisions to ordinance)
Joel has a new job in Austin but he's living there
six months and paying for an empty EPA home
A few years back Joel (who grew up in Menlo Park) bought the 3-bedroom home in EPA he lives in now. His employer offers him a promotion on March 1st but he needs to move to Austin, Texas to do the work, and he needs to move by the end of the month. Joel flies out and looks at homes in Austin and he realizes he’ll just about be able to afford to buy one there once he’s sold his East Palo Alto home, and this new work role is the right step to build his career. He tries to get pre-approval on a mortgage for Austin but the agent says he can’t be approved until the EPA home is sold. So Joel takes out a 6-month lease on an apartment in Austin to commute to work while he sorts out the EPA sale. No doubt he can sort that out remotely. He makes a hurried round of goodbyes with his friends and a fair few visits to Goodwill and the Shoreway transfer station while he is packing up, and sets off in a UHaul with all his furniture on March 20th, gets to Texas March 25th, changes his car license plate (he only has 30 days for this) and checks the box to vote in Texas, starts unpacking some boxes into his rental and figuring out the new job, and files his tax return with his new address.
Joel is now settled in enough to be able to tackle the EPA home sale and starts working with a clued-in local realtor who points out that now he’s a Texas resident and furthermore the property is vacant, 14.26.020 COPA rules apply. He helps him file the Notice of Intent to Sell 14.26.080 A and send it to the City and the Qualified NonProfits on April 1st.
Joel’s agent informs him that if nobody responds to the Notice of Intent to Sell that they will be able to list the property on April 16th. Joel wants to sell as fast as possible and get a good price he can use to buy a place in Austin so they decide to get the somewhat echoey vacant property painted up inside and out during April and then bring in a local staging company to put attractive furniture and decorations in to help the property to sell. They get the painters working, and book the stager to come in on April 12th so there is time to get it ready and take professional photos before putting the property on MLS on April 16th. The stager is charging $1000 for their services which includes a month of furniture rental. Extending for further months costs $500 per month.
Just as they are about to get the listing up, an email arrives on April 15th from “Good Homes” from “Good Homes”, a Qualified Nonprofit, stating they are interested. Joel needs to wait until April 30th for their formal Statement of Interest and can’t list yet. Joel gets started on finding all the costs he has incurred over the years to provide the insurance, utilities, maintenance and repair costs he has incurred as a homeowner to send to “Good Homes” in a Disclosure Package 14.26.080 C. He will have 5 days to do this. “Good Homes” submits their formal Statement of Interest on April 30th and Joel immediately sends back his disclosures. This extends the Notice Period by 30 days 14.26.080 D so now the earliest they can list is May 30th.
Joel doesn’t accept any offers during the First Offer period and goes on to list the property on May 30th. He pays an extra $1000 to keep the staging through until July 12th.
The open houses go well and he receives an offer on June 15th for $1050K from a well-qualified buyer with strong financing who is prepared to buy and close by the end of July. Joel passes on this offer to “Good Homes” and waits. 5 days later 14.26.100 C on June 20th “Good Homes” makes a Right of First Refusal offer that matches the price at $1050K and will close in 90 days (since they need commercial funding) 14.26.100 D - that’s September 17th.
“Good Homes” gets its funding sorted out, the transaction goes through and closes on time on September 17th. Joel now has his downpayment funds and is free of ongoing home expenses and can get pre-approved to buy a property in Texas. But the property he really wanted is no longer available to him, since it took him 4 months longer than he thought it would (6 months instead of 2 months) to sell his EPA home - at a cost of $15,848 to him in extra costs he has less cash available as a downpayment, and the properties he has been watching since April have all sold already. So he starts again and is able to move into his new Austin home by October. It took six months from hearing about his need to move until getting into his new place.
Joel incurs the following costs each month to hold the EPA property:
Mortgage - $3,000
Property tax - $500
Insurance on a vacant property - $200
PG&E minimum - $12
TOTAL - $3,712
His rental in Austin costs him $2,600 per month plus utilities and renters insurance.