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VO [00:00:06] You're listening to REINCheck with Andrea Rice Contracts and Industry Specialist at REIN, where you get the latest member news and information delivered straight from the source, REIN MLS.

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Andrea Rice [00:00:31] Hello and welcome to REINCheck, I'm your host, Andrea Rice, and today we are checking in with Brandon Allred and Al Patel to discuss the new Declaration of Ownership Interest Addendum. Brandon will be giving us a little bit of a background on what is meant by Source of Funds exemptions and Declaration of Ownership Interest under the law, and Al will help us navigate this new form available on REIN's rental library. Brandon is an attorney with Kaufman and Canoles and serves as REIN's Property Managers Advisory Committee legal counsel. And Al is REIN's Property Managers' Advisory Committee past Chair and current Co-Chair. Brandon and Al, thank you so much for being here today to talk about this new addendum.

Al Patel [00:01:14] Glad to be here.

Brandon Allred [00:01:17] Thank you for having us.

Andrea Rice [00:01:19] Yes. So last time we spoke, we were talking about a Source of Funds and we're going to keep talking about Source of Funds. So before we get into the addendum itself, Brandon, can you tell us a little bit about these Source of Funds exemptions and what ownership interest means under the law?

Brandon Allred [00:01:39] Yeah, absolutely. So last time we talked a little bit about what source of funds is what the term Source of Funds means. And we also touched on the exemption. But we'd like to take a closer look at the exemption today. And, as discussed, Virginia Fair Housing Law has changed. So Source of Funds is now a protected category, but not all owners have to live with Source of Funds as a protected category. So if you own four or fewer rental units in the Commonwealth of Virginia, then Source of Funds does not necessarily apply to you. In other words, you can treat tenants differently based on their income if you own four or fewer dwelling units in Virginia. The question then becomes what is meant by owning dwelling units? And if you just own property individually or through a wholly-owned LLC or limited partnership, then it's pretty clear. You own those units and you count those units. And if you own more than four the exemption does not apply to you. You have to respect Fair Housing Laws regarding Source of Funds. The question has been asked, well, ok, what if I own just a portion of a dwelling? What if I own a percentage of an LLC and I have other business partners? Or what if I'm a tenant in common with respect to the property and I've got other property owners and I just own a portion? And the code provides an answer to that, and it says that for purposes of counting dwelling units for this exemption, if you own ten percent or more of a dwelling unit, whether that's a ten percent interest in an LLC or a ten percent interest in a limited partnership, ten percent of the outstanding stock in an S corporation or just a ten percent interest as a tenant in common with other property owners, then that property counts for purposes of determining whether or not you qualify for the exemption. Is that helpful?

Andrea Rice [00:04:09] Oh, yes, I think so. I think that gives us a good framework to start actually talking about the new Declaration of Ownership Interest Addendum. So Al can you tell us a little bit about this addendum and when it would be used?

Al Patel [00:04:27] Certainly. So this is a brand new form and you can use it a couple of different ways. The obvious way is with a new management. If you've taken a new management, you can incorporate this as part of the management. The other time you can use it is when you're putting a property on the market that you're already managing, which is why there's an addendum. So you can just add to that existing management. Get the owners to sign off on it. You know, some companies may even send it to all their existing management. It'll be company policy I guess you know, it's up to the broker how they want to use it in that sense. But definitely before putting the property on the market, you would want to get that signed so that you would know whether the landlord owns more than four properties.

Andrea Rice [00:05:35] OK, so now we know when we're going to use the form. So can you tell us a little bit about the particulars of the form? There are actually three checkboxes on the form. And can you tell us what these different options are?

Al Patel [00:05:51] Sure. So, as Brendan mentioned, if you own more than four properties, keep in mind that ten percent thing is well, then you would not be exempt, obviously, and you will check that option. Is that fact that you're not exempt from that, that you own more than four properties and that's the first checkbox. Ok, so the second choice on the form says that the owner does not own more than ten percent or has less than ten percent interest in the property and then they elect not to be exempt under the Source of Funds. So if the owner wants to, for instance, accept Section Eight but is actually exempt, then they can select the second box and fall into the Source of Funds criteria. And be able to accept Section Eight or any other funds that Brandon mentioned in the previous podcast. The last option is that the owner does not own more than ten percent or foregoing unit and likes to be exempt. This is important, as we discussed in the previous podcast, with that exemption, yes or no field. These two boxes will basically drive that choice as well. If the owner is exempt, they need to select that last box, which allows an agent to check yes or no when that form as well. Does that kind of help?

Andrea Rice [00:08:01] Yeah, I think so, I think that lays out the three options that you have. I know we have received some questions. There are some blank lines on the form. How do you tackle these blank lines? What goes on those lines?

Al Patel [00:08:16] Those would be for the addresses of the property. So, for instance, if the owner owns, let's say, two properties and they want to be exempt from one, not the other, or exempt from both. That those are the way you put the property addresses so that the exemption or the election, whichever one you decide, can go in those lines.

Andrea Rice [00:08:48] Ok. And would this need to be updated if an owner sold a property or acquired a property?

Al Patel [00:08:59] Obviously, you know, you want to get that updated and actually Brandon can probably speak more on the legal side of it. But the code actually puts the onus on the landlord to notify the property manager if I'm not correct.

Brandon Allred [00:09:17] Sure. So the and that really becomes important when you have property owners who are exempt and who have neglected to take advantage of the exemption, either with respect to all of their properties or with respect to just selling their properties. And it is important to update this form. Again, the onus is on the property owner to inform you if they suddenly no longer qualify for an exemption that they're taking advantage of pursuant to the information they've given you here. But we do think it's best practice to have that conversation with the property owner, particularly when you have a new listing. And our hope is that this form provides a good opportunity for you to do that.

Andrea Rice [00:10:11] Right. Yes. Well, before we wrap things up, is there anything else that you would like to add about a Source of Funds exemptions, ownership interest that this new addendum itself? Anything else in particular?

Al Patel [00:10:27] No, I think Brandon covered the ownership part. The ten percent thing is really critical to keep an eye on.

Andrea Rice [00:10:37] OK, well, Brandon, did you have something?

Brandon Allred [00:10:42] I would agree with that I think there are a lot of property owners there who don't realize that for purposes of counting units, this applies to property that they may own just as passive investors as well if they're above that ten percent threshold. So it's really important to keep that in mind.

Andrea Rice [00:11:03] Right. Alright well, thank you. And I think, you know, Al, you mentioned this earlier, but I think it's important to reiterate, to check with your broker if you're not sure about whether or not you should be using this form or how to use this form. You know REIN offers us in our rental library of forms for your use, but your broker may have a particular form or a particular policy in place. So always check with your broker first. I want to thank you both for again joining us to shed some light on Source of Funds exemptions and ownership interest. For all of you out there tuning in, if you have any suggestions for our Property Managers Advisory Committee. You can feel free to submit them to PMAC@reininc.com. And I will be sure to get your suggestions on an upcoming meeting agenda. Al, Brandon, thank you again.

Brandon Allred [00:12:02] Thank you.

Al Patel [00:12:02] Thank you.

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VO [00:12:08] You've been listening to REINCheck with Andrea Rice. Stay in the know from those who know. Delivered straight from the source REIN MLS.

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