Friday, May 27, 2011

THE IRS CRACKS DOWN ON UNPAID ESTATE TAXES

Distributees beware! The IRS is now using state land-transfer records to discover unpaid Estate Taxes on gifts of real property to family members.

Although federal exemptions are currently at $5 million, gifts amounting to $13,000.00 or more must be reported to the IRS by filing Form 709 for U.S. gift and generation-skipping transfer taxes.

As a result of these investigations in which the IRS uses land-transfer records as evidence, many people are being examined, and possibly taxed, fined, or penalized.

Lesson: If a gift of real property is worth more than $13,000, even if within the lifetime exemption amount of $5 million, a gift-tax return must be filed or it must be reported!

SOURCES:http://online.wsj.com/article/SB10001424052702304066504576345672097256428.html?mod=WSJ_RealEstate_LeftTopNews

Thursday, May 26, 2011

Bloomberg Offers Data on Discount for Distressed Property Purchases

To read the article, click here.

While the article claims a 27% discount on distressed properties (short sale, foreclosure or REO), I believe the data is misdirected. Yes, the average price of distressed property is 27% less than that of normal sales. Yet, this doesn't mean that purchasers pay 27% below the appraised price of the unit and get an outstanding deal. It's misleading.

Instead, all the data means is that the average cost that people pay for distressed property vs. normal property is 27% less. This may result from the fact that less expensive properties are more likely to be distressed. A correlation that I do not have data for, but believe through my anecdotal evidence seen in practice. What the article wrongfully suggests to the lay reader is that two neighboring houses are sold and the distressed one is sold at a huge discount. Simply not the case.

What we see in our active foreclosure / short sale practice is that there are only very slight discounts on purchasing distressed properties. The reason is simple: Banks get appraisals (or brokers price opinions) and know the value of the property.

To be clear, banks don't just give away distressed property.

Wednesday, May 25, 2011

Deed-in-Lieu Doesn't Violate HEPTA

Lenders became concerned by the new HETPA enacted as they feared that this would cause problems with deed-in-lieu transfers in foreclosure actions. However, the Banking Department have put these fears at ease with a further explanation of the statute, its possible interpretations, and the legislative intent.

In recent years, there have been issues with deed theft, home equity theft, and foreclosure rescue scams in which loan modification companies scam distressed homeowners. Legislature enacted the Home Equity Theft Prevention Act (HETPA) which includes Real Property Law 265-a. The purpose of the act was to protect homeowners where a homeowner mistakenly deeds their property to a loan modification company by coercion from the same under the guise that this will assist in obtaining a modification, refinancing, or a new loan. Another situation the legislature protects against is where the homeowner is told to sign over the deed, and knowingly does so, under the misapprehension that the loan modification company will deed it back to them in a more affordable way, after “renting” the property from them, but the loan modification company makes this impossible and unaffordable.

The aforementioned act creates protection in a few different ways. First, by ensuring that homeowners are provided with essential information in making an informed decision when transferring their property. There are also prohibitions against unconscionable contract terms, fraud and deceit. There is also a two year statutory right to rescind a contract (from the date of recording) where an equity sale is in material violation.

Issues have arisen wherein banks, foreclosure counsel, and title insurance companies have become concerned about the potential misapplication of the subject statute. Specifically, they are concerned that “deed in lieu of foreclosure” (a/k/a “deed in lieu” or “DIL”) transfers will be subject to the same. A DIL is an instrument wherein a mortgagor conveys the property to the lender to avoid costly foreclosure proceedings, and releases them of all or most of the personal liability on the note. This option is useful to homeowners/borrowers who are not financially able to participate in a loan modification process or cannot otherwise afford a foreclosure proceeding. HAMP (Home Affordable Mortgage Program), HAFA (Home Affordable Foreclosure Alternatives), HUD and Fannie Mae all acknowledge that DILs may be useful and necessary in some foreclosure situations.

The Banking Department has put these fears at ease by pointing out that with statutory interpretation, it is essential to pay careful attention to legislative intent. Conspicuous in its absence in this bill is any mention of deeds in lieu of foreclosure. Although this statute does apply to a “residence in foreclosure”, it does not apply to DIL which gives the holder of the mortgage in default the property, as they might be entitled to it in a foreclosure proceeding anyway. Although the language does not specifically exclude them, the intent of the drafters evidences the fact that the purpose was to apply to “scammers and unscrupulous entities who stole a homeowner’s equity and to bona fide purchasers who might buy the property from them”. Further, case law does not support the contention that this bill was meant to be applied to DILs with lenders.

Sources: http://www.banking.state.ny.us/il110510.htm

Saturday, May 21, 2011

Making Home Affordable Handbook

As promised at our class at Bethpage Federal Credit Union on Thursday, please find a link to the handbook for servicers of distressed loans by clicking here.

Thursday, May 19, 2011

Property Condition Disclosure Statement - Pay the Money!!!

Again an Appellate Court has stated that filling out the PCDS incorrectly may constitute active concealment that an AS IS clause in a real estate contract cannot overcome. Don't fill out the statement. Brokers / Agents be sure not to touch a PCDS. $500 is just part of the cost of selling property like paying taxes.

Here is the case:

Pettis v Haag
2011 NY Slip Op 03944
Decided on May 12, 2011
Appellate Division, Third Department
Published by New York State Law Reporting Bureau<http://www.courts.state.ny.us/reporter/> pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided and Entered: May 12, 2011

510882

[*1]JODY PETTIS et al., Respondents,

v

BRYAN HAAG et al., Appellants.

Calendar Date: March 23, 2011
Before: Peters, J.P., Rose, Lahtinen, Malone Jr. and Garry, JJ.

Timothy A. Benedict, Rome, for appellants.
James J. Devine, Oneida, for respondents.


MEMORANDUM AND ORDER

Garry, J.

Appeal from an order of the Supreme Court (Cerio Jr., J.), entered January 5, 2010 in Madison County, which denied defendants' motion for, among other things, summary judgment dismissing the complaint. In April 2007, defendants listed their residence in the Town of Canastota, Madison County for sale, and executed a Property Condition Disclosure Statement in accord with Real Property Law article 14. Within this statutory disclosure document the sellers asserted, among other things, that there were no material defects in the roof or electric service of the residence, and no flooding, drainage or grading problems that resulted in standing water on any portion of the property. Plaintiffs contracted to purchase the property and hired an inspection service to examine the residence. The inspection report listed several areas of concern — including missing shingles on the roof, incorrect wires in a breaker box and evidence of water seepage in the basement that could require grading work — prompting the parties to execute an addendum to the purchase contract, in which defendants agreed to repair and replace the missing shingles, remove the incorrect wires and add electrical breakers as necessary prior to the closing. In August 2007, plaintiffs performed a walk-through inspection, and closed on the property shortly thereafter. Plaintiffs discovered in October 2007 that defendants had not remedied the electrical problems listed in the addendum. In February 2008, they found additional wiring problems that had been concealed behind the basement ceiling. The property suffered extensive flooding repeatedly. The roof lost approximately 40 shingles annually due to wind. In May 2009, [*2]plaintiffs commenced this action presenting these issues, and alleging that defendants had knowingly made fraudulent material representations about the condition of the property relative to these flooding, roof and electrical problems. Prior to joinder of issue, defendants sought dismissal of the complaint for failure to state a cause of action and a defense based on the documentary evidence or, in the alternative, summary judgment. Supreme Court denied the application on both grounds, and defendants appeal.

To establish their cause of action for fraud, plaintiffs must demonstrate that defendants knowingly misrepresented a material fact upon which plaintiffs justifiably relied, causing their damages. "Although New York traditionally adheres to the doctrine of caveat emptor in an arm's length real property transfer," a seller may be liable for failing to disclose information if the conduct constitutes active concealment (Klafehn v Morrison, 75 AD3d 808<http://www.nycourts.gov/reporter/3dseries/2010/2010_06030.htm>, 810 [2010]; see Simone v Homecheck Real Estate Servs., Inc., 42 AD3d 518<http://www.nycourts.gov/reporter/3dseries/2007/2007_06224.htm>, 520 [2007]). A false representation in a disclosure statement may constitute active concealment (see Anderson v Meador, 56 AD3d 1030<http://www.nycourts.gov/reporter/3dseries/2008/2008_09153.htm>, 1035 [2008]; Simone v Homecheck Real Estate Servs., Inc., 42 AD3d at 520-521). To prevail upon such a claim, plaintiffs must demonstrate that the false representation prevented fulfillment of their own obligations imposed by the doctrine of caveat emptor and that they justifiably relied upon the false representation (see Klafehn v Morrison, 75 AD3d at 810). "Justifiable reliance does not exist where a party has the means to discover [a falsehood] by the exercise of ordinary intelligence, and fails to make use of those means" (Kurtz v Foy, 65 AD3d 741<http://www.nycourts.gov/reporter/3dseries/2009/2009_06105.htm>, 743 [2009] [internal quotation marks and citations omitted]). As to the condition of the roof and the breaker box wiring, although defendants' disclosure stated that there were no material defects in these areas, plaintiffs' home inspection report put them on notice of the existing problems. In light of this notice, plaintiffs cannot prove justifiable reliance on those representations by defendants, and these claims should have been dismissed. However, we reach a different conclusion as to the flooding and the additional electrical issues. Defendants asserted in their disclosure that there were no flooding issues on any portion of the land. The home inspection report merely noted that the basement was subject to water seepage and that grading might be necessary to prevent this, with no mention of problems with standing water elsewhere on the property. Reviewing this motion as one for summary judgment, we find that defendants satisfied their initial burden by supplying affidavits denying actual knowledge of the flooding problems, together with the documents comprising the underlying transaction (see e.g. Killough v Shiels, 45 AD3d 1159<http://www.nycourts.gov/reporter/3dseries/2007/2007_09177.htm>, 1160-1161 [2007]). The burden then shifted to plaintiffs, who submitted affidavits from various neighbors describing prior flooding they had observed upon the property. This evidence presented factual issues as to defendants' knowledge and active concealment of the flooding (compare id. at 1161). While defendants assert that these affidavits may also pose issues regarding plaintiffs' diligence, this is a factual inquiry to be determined by a jury (see Boyle v McGlynn, 28 AD3d 994<http://www.nycourts.gov/reporter/3dseries/2006/2006_02971.htm>, 996 [2006]; Gizzi v Hall, 300 AD2d 879, 881-882 [2002]).

Similarly, defendants asserted in the disclosure form that there were no electrical problems and denied actual knowledge of such problems in their affidavits; plaintiffs' inspection only revealed the problems with the breaker box and the electrical intake, as the additional electrical issues hidden behind the basement ceiling — and apparently related to renovation work by defendants — were not discovered until the ceiling covering them collapsed. In their opposition, plaintiffs submitted an invoice from a construction company describing the hazardous electrical conditions allegedly created during the course of the basement renovations. Thus, we agree with Supreme Court that there are factual issues posed as to defendants' [*3]knowledge and active concealment of those problems.  Finally, defendants argue that the general disclaimer of warranties and representations in the closing documents negates any allegations of fraudulent misrepresentation by plaintiffs. Such allegations based upon the statutory disclosure form, however, survive general, "as is" disclaimers in the closing documents (see Real Property Law § 465 [2]; Daly v Kochanowicz, 67 AD3d 78<http://www.nycourts.gov/reporter/3dseries/2009/2009_06232.htm>, 87-88 [2009], citing Ayres v Pressman, 14 Misc 3d 145<http://www.nycourts.gov/reporter/3dseries/2007/2007_50397.htm>[A], 2007 NY Slip Op 503097[U], *1-*2 [2007]; Calvente v Levy, 12 Misc 3d 38<http://www.nycourts.gov/reporter/3dseries/2006/2006_26163.htm>, 40-41 [2006]).

Peters, J.P., Rose, Lahtinen and Malone Jr., JJ., concur.

ORDERED that the order is modified, on the law, without costs, by reversing so much thereof as denied defendants' motion seeking dismissal of the claims relative to the electric breaker box and roof problems; motion granted to that extent and said claims dismissed; and, as so modified, affirmed.

Financing Issues with Distressed Properties - by RE School Instructor Karen Laurence

Usually a foreclosed home is not in excellent condition. Most of them have been neglected by their owners for lack of funds to maintain as well as make the monthly payments. The Bank-owned properties are called REO’s(real estate owned) and are back on the market for sale as is. Some will not pass an appraisal for a loan and must make use of a rehabilitation loan (203 k)that can be obtained through FHA or a construction loan-both of which are expensive and time consuming. Distressed properties, which are short sales and foreclosures, made up 40% of the sales last month.* Many buyers are not prepared to wait 3-6 months or longer for bank approval to move forward on these homes. They are looking to buy a house and move into it within 3 months.

In addition to that, 35% of these sales are all cash because financing is not obtainable or they are investment homes which are also difficult to finance at this point in time. Most of the time the electricity and the water are turned off and lenders must have the heat and water on to approve the loan. And a Certificate of Occupancy. The interest rate on a FHA rehab loan is ¼ point higher and usually has one or two points in it.

Sometimes you can get that bargain home through an REO but you can also get a great home now with your local realtor because prices are still low.

*The New York Times, May 15, 2011, Maryann Haggerty


Karen R. Laurence

Mortgage Loan Office

Email: klaurence@bethpagefcu.com

Bethpage Federal Credit Union

899 S. Oyster Bay Rd

Bethpage, NY 11714

Blackberry: 516-203-6286

Cell: 516-524-3953

Fax: 866-815-5710

Wednesday, May 11, 2011

My Home is Alive

Google did it again. Check out this article about how Google is changing the way we live at home from lighting to your alarm clock. Wow!!!

I love automation + there are many green concepts in energy efficiency that will emerge. Stay tuned.

Monday, May 2, 2011

Learn to be a Landlord

Did you know that Suffolk County has an entire Chapter of Laws concerning the rental of property?

These laws regulate such things as the minimum terms of a written lease (1 year unless waived by the tenant); requirements if the property is in foreclosure (notice to tenants within 5 days of service); social service recipients (landlords data collected by DSS) and criminal (misdemeanors) and civil penalties (3x actual damages).

The key is to remember that multiple levels of government may regulate the same thing, a landlord must look not only to their Town or Village for laws, but also to their County, State and Federal Government for the laws to make money without violation.

Keep posted to www.liebatlaw.com & this blog to learn when our first continuing education class on the Long Island Landlord will be offered.