The Department of Real Estate oversees the marketing and sales of subdivided lands, which is generally defined as developments consisting of five (5) or more lots or units, for sale to members of the public. With their mission to provide consumer protection to California homebuyers, the DRE review investigates subdivision offerings to prevent fraud and misrepresentation in subdivision sales.
DRE has jurisdiction over the real estate licensee involved in the sales transactions, as well as the Subdivider who offers the subdivided lands for sale. In some cases, it makes sense to evaluate an overall picture before jumping too quickly into an approach that may seem “too good to be true.”
As with many things, there are opportunities that may appear to fall under an exemption that allows avoidance of DRE review…. Creating only four lots at a time would seem, on the surface, a way to avoid DRE scrutiny. “4 x 4ing” is a term used to describe the development of contiguous or related properties in multiple configurations of 4 lots or less. Creating four parcels at a time can easily be done through a Parcel Map, which is often overlooked as a “subdivision.”
Regardless of what mapping process is used to create the lots, whether it be through a Parcel Map or a Final Subdivision Map, or a Condominium Plan, five lots or units is the magic number where DRE is concerned. Developments containing four (4) or fewer lots or units do not fall under DRE jurisdiction.
There are several ways to achieve 4 x 4ing, and we’ve provided several examples below.
EXAMPLE 1: A 40-acre property could be divided into four 10-acre lots through a Parcel Map. Then, each 10-acre parcel is re-subdivided into four 2-1/2 acre parcels. At this point, there are 16 lots created, which should be filed with the Department of Real Estate under a Public Report application before marketing and sales can commence.
EXAMPLE 2: Upon approval by the local agency, the Subdivider opts to record two separate final maps on an entitled property, so that the improvement costs can be “phased,” thus reducing the up-front development costs. The first map reflects four lots with a “Remainder Parcel,” which is then re-subdivided into four more lots. Technically, based upon the entitlement and plan to market and sell a total of eight (8) residential lots, the initial offering becomes subject to DRE requirements, as a part of a larger development.
EXAMPLE 3: A property is entitled for more than 5 lots or units, but is divided only into three “large” lots. Each Lot is then re-subdivided into 3 condominium units. The 9 units that have now been created are subject to DRE review. Even if each of the 3-unit condominium projects are created and documented as separate stand-alone projects, the DRE views them as related, due to the original plan entitled by the governing agency.
These are just a few examples of development plans that unwittingly fall under the DRE jurisdiction for review. If you are not sure if your subdivision is subject to a Public Report filing, give us a call and we will be happy to discuss your project and filing requirements.