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Legalized marijuana impacts a surprising number of real estate transactions

Marijuana is legal for medical and recreational use in an increasing number of states, but federal law deems it illegal – know your liability and serve your clients by being in the know.

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legalized marijuana

There is a logistics battle going on in America as various states have legalized marijuana for medical or recreational use, conflicting with federal law which asserts the use is illegal. This battle makes vulnerable a surprising number of real estate transactions, from residential and commercial to leasing, and it is notable than over half of the nation’s one million Realtors reside in jurisdictions with locally legalized marijuana.

At the “Medical Marijuana Laws Impact all Real Estate Transactions” session during the 2014 REALTORS® Conference & Expo, panelists took on the topic and its implications, and Realtors should be aware of the laws so they can best represent their clients. The National Association of Realtors (NAR) has no policy or position on the issue.

A shifting public opinion

According to the National Conference of State Legislatures, 23 states and the District of Columbia have passed comprehensive laws permitting the prescribed medical use of marijuana, 11 states have laws permitting limited possession and use, and three states permit recreational use. Federal law prohibits the use, possession or sale of marijuana for medical or any other use.

The change in state laws appears to be following a shift in public opinion. According to the Pew Research Center, a slim majority now supports the legalization of marijuana. In 1969, only 12 percent of Americans said the use of marijuana should be legal; in 2014 the number was 52 percent.

Landlords better pay attention

“While the legalization of marijuana has more obvious implications for residential and commercial property managers who have to deal with a variety of landlord-tenant issues, it’s also creating challenges for community and condominium associations and federally assisted rental housing,” said panelist Megan Booth, senior policy analyst for the National Association of Realtors®.

According to Booth, as laws change, multifamily properties and condos may be required to add lease addendums or modify their association rules to clarify policies on marijuana cultivation, distribution and use.

REALTOR Magazine added that Booth pointed out that federal law gives the government the right to seize finances and property that are connected to illegal activity, including drugs. “So technically, landlords who let tenants grow weed in their apartments or smoke it on site for any purpose run the risk of having their real estate property taken from them.”

Panelists also dove into concerns regarding liability and disclosure issues for agents and property owners, property damage and remediation, as well as health and safety risks.

What about properties where weed is being grown?

Panelists also expressed that additional considerations should be taken for properties where marijuana is being grown, such as potential impacts on neighbors, tenants and properties, including smoke and odors, mold from the high humidity levels needed for growing, expensive utility costs for lights and water, and even the possibility of explosions during manufacturing of related products.

Realtor Pauline Aunger said there are similar concerns about marijuana growing operations in their Canadian provinces where national law permits the possession and use of medical marijuana; however, a production license is required to grow marijuana for medical purposes.

Aunger said illegal marijuana growing operations in apartments, homes and commercial spaces are becoming a common challenge for Canadian police and for property owners who lease those spaces to tenants and could face property damage and legal risks from their tenant’s growing activities.

Aunger recommended that property managers make planned visits to their leased properties on a frequent basis to ensure tenants aren’t violating marijuana laws. She also said Realtors® should disclose to potential buyers if a property was used for growing marijuana.

Where to learn more

So you don’t have to dig too deep for the laws in your area, The Institute of Real Estate Management recently released a white paper with additional information about marijuana legalization laws and their impact on commercial spaces. Be familiar with it, discuss it with your broker, and be sure that you’re covering all of your bases not only to best serve your clients, but to decrease your liability.

The American Genius' real estate section is honest, up to the minute real estate industry news crafted for industry practitioners - we cut through the pay-to-play news fluff to bring you what's happening behind closed doors, what's meaningful to your practice, and what to expect in the future. Consider us your competitive advantage.

Government

Why you must care that the Feds will now monitor secret real estate deals

The government will now monitor secret real estate deals in two cities, perhaps nationwide as of next year – could this hurt the industry, or clean up the flow of dirty money?

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Did you know that there are anonymous international buyers paying all cash for luxury properties in America under LLCs? Regardless of your personal feelings on the matter, the U.S. Treasury Department has announced that they’ll be monitoring those transactions in New York City and Miami to identify buyers.

There were hints that this two-city program could roll out nationally, but the program must first prove to be a success.

Why the Feds care

This purchasing method is becoming increasingly common across major cities in America, and the Treasury Department’s Director of Financial Crimes Enforcement Network, Jennifer Shasky Calvery told the NYT:

“We are concerned about the possibility that dirty money is being put into luxury real estate. We think some of the bigger risk is around the least transparent transactions.”

Why you should care

Making money as a Realtor is pretty appealing, especially if you want to survive, and saying no to a transaction based on their funding my prove difficult for some who are trying to just make an honest living.

There’s an ethical issue at play here – the reason for the monitoring is that our government believes this is one way money is being laundered.

“We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium US real estate to safely and secretly invest millions in dirty money,” said Calvery.

So how does this effect you?

If you’re in NYC or Miami, if you sell a property that’s over $3M, the government will require the title insurance company to discover the buyers’ names and submit that info to the Treasury database which law enforcement will have access to.

It sounds like a minimal number of deals, but the NYT reports that in Manhattan, 1,045 apartments would have qualified for this information collection process in the second half of 2015 alone, representing over $6.5B in total.

This marks the first time the Feds have required this level of disclosure in transactions, and the pilot program will run from March through August, becoming permanent nationally if the task force offers significant findings of money laundering.

So, the secret deals are over in these two cities, at least until August.

If this goes national, we expect international purchases of luxury properties to diminish, as it becomes less appealing for a very specific, yet exceedingly wealthy type of buyer. Further, real estate practitioners profiting from this type of purchase will likely see a rapid and sharp drop in volume.

#SecretDeals

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Government

What is the extent of NAR’s role in the Presidential election?

All eyes are focused squarely on the upcoming presidential election, but what exactly is the National Association of Realtors’ role?

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What’s the relationship between the National Association of Realtors (NAR) and upcoming presidential elections? As the largest trade association in America, NAR advocates every day on behalf of the nation’s 1 million REALTORS® and 75 million property owners. NAR is widely considered one of the most effective advocacy organizations in the country. With numbers like that, it’s no wonder candidates pay attention to the collective needs and wants of NAR members.

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But the interest goes both ways and according The Voice for Real Estate, NAR will be watching this year’s presidential election with a keen eye.

The housing recovery in particular is expected to play a large role in the outcome between the parties. According the NAR’s President Moe Veissi, NAR is working with policymakers “to ensure that mortgages are more readily available for qualified buyers.”

What is the goal here?

The goal is to help potential and creditworthy home seekers to obtain mortgage financing and help more people keep their homes or avoid foreclosure through a streamlined short sale process. The realtors believe housing recovery shouldn’t be a partisan issue, but lawmakers must understand the steps needed to keep the upward momentum that has finally begun, going, and cited several initiatives implemented by the present administration that has helped turn the market around.

Republican and Democratic candidates for president often touch on issues important to real estate while on the campaign trail. NAR follows candidates’ proposals carefully, but NAR Deputy Chief Lobbyist Jamie Gregory provides a reminder that proposals must travel a long road through Congress before anything happens: 

“Candidates are posturing and positioning to the voters and trying to attract their votes. So while [the candidates] are saying what their ideal plans are, even if they get elected they can’t do it alone. They still have to go to Congress; they still have to have a partner in this process. And Congress will have a lot of day about what happens.”

Staying up to speed

Current issues regarding NAR and political advocacy on Capitol Hill can be found on NAR’s Political Advocacy Page.

Below, NAR explains more in depth their connection and involvement in the upcoming elections:

#2016election

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Government

NAHB officer may run for Congress to replace the embattled Rep. Schock

NAHB officer may run for Congress in light of Rep. Schock’s vacated seat and this officer has the experience to make a difference.

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nar writes congress about tax reform

With the resignation of Congressman Aaron Schock, there is a seat in Illinois that desperately needs to be filled. Schock resigned in light of several allegations that he defrauded his constituents by misspending their money, received inappropriate gifts, and sponsored zero bills during his three-plus terms.

A bit about Brady

Enter Ed Brady. His name will more than likely ring a bell. He is the National Association of Home Builder’s (NAHB) Vice Chairman of the Board and a home builder from Bloomington, Illinois. He has been active in the NAHB leadership structure at the local, state, and national levels throughout his career. Brady has served on the NAHB board of directors for more than ten years and has been a member of the NAHB Executive Board since 2005.

Brady also served as a member of the Bipartisan Policy Center Housing Commission from 2012 to 2014, which was formed in the wake of the housing market crisis to examine the nation’s housing policy and suggest new ideas and approaches to contribute to the dialogue and help further the housing policy reform debate and now, he has thrown his hat into the Congressional arena.

The NAHB pledges their support

Tom Woods, chairman of the NAHB, has issued a statement regarding Brady’s run for the United States House of Representatives: “Ed has been recruited by many in his home district to consider running for the congressional seat being vacated by Rep. Schock. This should come as no surprise, given that he has been active in politics for over 27 years.”

“While Ed remains dedicated to NAHB, he has told his fellow officers and leaders of the association that he feels a strong sense of duty to explore this opportunity to run for Congress. Whatever he may decide, he will have the unwavering support of this association. Ed has said he will decide early next week what his next steps will be.”

Until he makes an official announcement, we can only hope that one of real estate’s own will make an entrance into the office that was so unappreciated by its last occupant.

#RepBrady

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