Monday, August 31, 2015

Five Discrimination Issues in Residential Real Estate Leasing

Landlords have an incredible number of issues to deal with, not the least of which is considering to whom they will open their doors as tenants. Landlords and their agents are restricted by civil rights laws from privately discriminating against prospective and current tenants. In fact, the seminal U.S. Supreme Court case of Reitman v. Mulkey expressly found that a private right to discriminate was unconstitutional. Yet, what does it mean for a landlord to discriminate? Here are the five ways a landlord can get sued under discrimination laws.

Read the full article written by Andrew Lieb, Esq. here. 

Thursday, August 27, 2015

Fortune Attacks Real Estate Brokers – Do You Agree?

Yesterday, Chris Matthews’ article “Real estate agents may be colluding to rip you off” was published by Fortune while citing to a paper published by the National Bureau of Economic Research and authored by Panle Jia Barwick, Parag A. Pathak, and Maisy Wong.

The article claims that “brokers who charge lower commissions are punished in the marketplace” and that sellers are “uniquely incapable to gauge the quality of what they’re buying”.
According to the authors of the cited article, Conflicts of Interest and the Realtor Commission Puzzle,
“[t]hese adverse outcomes reflect decreased willingness of buyers' agents to intermediate low commission properties (steering) rather than heterogeneous seller preferences or reduced effort of listing agents.”
So, in English, it’s not that seller’s agents’ efforts are adversely affected by lower commissions, but instead, that buyer’s agents, who are generally compensated by seller’s agents, are less likely to bring buyers to properties where they are offered a lower percentage for procuring.

As an industry, we need to make sellers capable of gauging the quality of what they’re buying; to make informed decisions as to commission payments.

To accomplish this, brokers need to explain to sellers that they offer a split of their commission to other brokerage companies in the area (i.e., cooperative brokerage) in order to induce such other brokers to act as buyer’s agents and/or broker’s agents in procuring their purchaser to buy the property (i.e., this practice increases demand and consequently the price for real estate).
Seller’s agents need to explain that buyer’s agents and/or broker’s agents are money driven and will steer their buyers to the properties where they are compensated at a higher level (as stated in the study).

Consequently, the amount of the commission that is to be paid to the cooperating brokers must be discussed when a seller’s agent initially takes the listing and such percentage should be included within the brokerage contract (i.e., exclusive right to sell agreement).

In Long Island, the local REALTOR© Board, LIBOR, permits the seller’s agent to control the commission percentage offered to cooperating brokers in each individual deal.
To illustrate, if a seller is paying a broker 6% one cannot deduce that the cooperating broker, who procures, will always get 3% for their efforts. Instead, the cooperating broker will get whatever percentage that is listed on the cooperating brokerage listing (i.e., Stratus) agreement by the seller’s agent (each region in New York has a different cooperating brokerage agreement and therefore this blog’s suggestion does not hold true everywhere).

As a result, sellers need to be educated that they have 5 points of negotiating commissions when hiring their real estate agent, as follows:
  1. The commission percentage to pay the seller’s agent for merely listing the property and negotiating for the seller;
  2. The commission percentage to pay the seller’s agent if such agent individually lists and procures the purchaser (i.e., direct deal);
  3. The commission percentage to pay the seller’s agent if such agent lists, and the commission percentage to pay a colleague within the same brokerage if such colleague procures the buyer  (i.e., in-house deal; this will be one total commission number for both the listing and procuring because the brokerage and not the salespersons is paid the commission);
  4. The commission percentage to pay the cooperating broker where the seller’s agent lists only, but another brokerage procures the buyer while such cooperating broker is negotiating for the interests of the seller (i.e., broker’s agent);
  5. The commission percentage to pay the cooperating broker where the seller’s agent lists only, but another brokerage procures the buyer while such cooperating broker is negotiating for the interests of the buyer (i.e., buyer’s agent)

The article’s title attacks an industry (“colluding to rip you off”). Yet, this blogger theorizes that sellers care more about themselves and getting the job done (i.e., selling) than fixing an industry. Without commenting as to whether the authors have a point about collusion, its submitted that simply having our brokerage industry inform and educate our buyers of the statistical effects of their commission offerings will make meaningful change. Let’s give our clients the tools to make smart choices. Let’s educate the vulnerable consumers that we serve. It’s the job of a seller’s agent to explain to their seller the 5 points of negotiating commissions.

Real Estate Contract Originals Must be Retained

A New York Appellate Court, in Stathis v. Estate of Karas, recently addressed a lawsuit against an estate to enforce a real estate contract of sale that was entered into by the decedent pre-death. However, the Plaintiff could not produce the original contract of sale so he submitted a copy to the Court. The Court refused to accept the copy as evidence when hearing the case.

The Court explained that when a plaintiff wants to submit a copy, pursuant to the Best Evidence Rule of CPLR Rule 4539, they must establish:

  1. Why the original document could not be produced;
  2. That person’s attempts to find the original contract; and
  3. That the copy was a reliable and accurate depiction of the original contract.

In Stathis v. Estate of Karas, the Plaintiff failed to show why he could not produce the original contract, and what efforts he undertook to try and find such original contract. Also and most importantly, the Plaintiff failed to show that the copied contract of sale was a reliable and accurate portrayal of the original contract. As a result, the Plaintiff was not allowed to produce the copied contract of sale, the Appellate Court reversed a verdict in the Plaintiff’s favor, and a new trial was ordered. 

It is always safe to keep your original real estate contracts of sale because the burden of proof to submit a copy is hard to satisfy.

Beware of Form Contracts – Why Your Business Needs a Tailored Agreement

As an attorney that regularly practices commercial litigation, I read a lot of contracts. Some good, most bad. One disturbing trend that I have noticed is the willingness of businesses – both small and large – to use form contracts or contracts created for other companies. The justification I hear is the belief that the contract must be good enough because a larger or older company is using it. The thinking is simple – “if it works for them, why wouldn’t it work for me?”

This isn’t a knock on Blumberg forms or other form contracts. They have their purpose and may work for some people. I do, however, take exception to the thought that because it’s good enough for someone else, it is good enough for your business. It’s not, and the fact that I just finished a trial on a ten year old breach of contract litigation confirms that every business needs its own tailored contract.

Form contracts and contracts written for other businesses do not take into account the traits that make your business unique. Every business has a differentiator, especially in highly regulated fields. When you use a form contract, you are failing to include language that accounts for and takes advantage of the differentiator that makes your business successful.

Form contracts typically are overbroad and are not sufficiently specific. Blumberg doesn’t know the nuances of the agreement between your business and your clients, so their contracts are intentionally drafted using vague, ambiguous and broad terms and topics. In a breach of contract litigation, ambiguities are the death of your contract. Not only are ambiguities construed against the drafter of the contract (yes, you are considered the drafter of the contract if you choose a form contract[1]), but once a court finds an ambiguity, the door is open to parole (extrinsic) evidence which can potentially modify the written contract.[2] If you are fighting about what the parties “thought” the contract meant, you have already lost the battle.

My ten year old breach of contract case likely never would have gone to trial if the business had used a contract tailored to their specific business instead of using a generic contract used for their industry in general. Because the form contract included services and methods of payment that were inapplicable to the business, following a motion for Summary Judgment (asking for a pre-trial decision by the Court as a matter of law), the Court held that the contract was ambiguous. Once it was determined that the contract was ambiguous, the defendant was allowed to introduce a slew of evidence of oral representations allegedly made by the business which made the defendant misunderstand the written terms of the contract. If the business had retained an attorney to draft a contract specifically for the services that they provided instead of using a form contract shared between multiple businesses in the industry, there likely would have never been a lawsuit in the first place, let alone a trial.  

If you have the ability to control the contents of your contract and you take a shortcut or the cheap way out, you are being penny-wise but pound-foolish. A rock solid contract decreases litigation costs and increases the chances that you will be compensated for your goods or services. A defaulting party is less likely to challenge a contract in Court if the language is straightforward and tailored specifically to address the dispute in question. Finally, in the event that you are forced to go to Court to enforce your contract, a tailored agreement decreases the chances that there will be a trial[3] to resolve what the parties were really agreeing to when they entered into a written contract that was supposed to memorialize their understanding and agreement.

Be wary of forms.  

[1] Interested Underwriters at Lloyds v. Ducor’s Inc., 103 A.D.2d 76 (1st Dept. 1984)
[2] Hartford Accident & Indemnity Co. v. Wesolwski, 33 N.Y.2d 169 (1973).
[3] The interpretation and application of an unambiguous contract is a matter of law that may be disposed of in a motion for Summary Judgment, obviating the need for a trial. Hartford Accident & Indemnity Co. v. Wesolwski, 33 N.Y.2d 169 (1973).

Monday, August 24, 2015

Top 5 Invisible Location Issues For Purchasing Property

Location, Location, Location. Have you ever driven by a property and questioned why THEY don't just put XYZ (i.e., Coffee Shop, Apartments, Offices, Gym) in over there? Then, you thought to yourself: "I can do it, I'm going to be rich!!!" The problem with your get rich plan is that what you see is not what you get when you solely focus on the visual of a given property (i.e., Location, Location, Location). Before becoming a first-time developer of residential or commercial real estate you need to understand these five invisible location issues.

Wednesday, August 19, 2015

Superstorm Sandy Property Tax Relief

The Governor signed a new law this month that provides tax relief to homeowners who renovated or repaired their homes after Superstorm Sandy (Sandy), or are in the process of or are considering doing the same. 

While driving through the coastal neighborhoods of Long Island, Queens and Brooklyn, it’s a very common sight to see homes being raised, abandoned, for sale or completely renovated and looking brand new; all of these events generally being caused by Sandy.

When the renovations were made, homeowners likely were worried about being able to live in their homes again, not about minimizing the resulting property value increase, so this law creates welcomed relief for those who are going to be shocked to find a significantly higher property tax bill for their renovated homes (i.e., the renovation increased the home’s value and hence the home’s allocation for real estate taxes).

Some fine print that is important for assessing eligibility for this exemption:
  1. Applications are to be made to your local Town Assessor; 
  2. The home must be used and occupied for residential purposes (1-3 family homes are eligible); 
  3. The current owner must have owned the home prior to October 29, 2012; 
  4. Renovations must have been made to portions of the home that existed before October 29, 2012 and a new Certificate(s) of Occupancy showing the improvements must be obtained on or before March 1, 2018; 
  5. You can apply for the exemption beginning March 1, 2016, but no later than March 1, 2018; 
  6. If you are thinking of selling or buying a home that may be eligible for this exemption, be aware that the exemption terminates if the title to the home is transferred (except for those who inherit and then occupy the home); and 
  7. The exemption can last 8 years if homeowner complies with the conditions described herein. 

It is important for those who recently completed or are in the middle of renovations to make sure that they obtain their final Certificate(s) of Occupancy before March 1, 2018 to remain eligible for this exemption, as this process can be frustratingly long depending on the work done to the home.

Homeowners who are interested in applying for this exemption should consult with their contractors and real estate attorneys to make sure their Certificate(s) of Occupancy are in order and that important deadlines are not overlooked.

Tuesday, August 18, 2015

Lieb School Student Question: If a client [Home Owner] informs me that there was a suicide in their home, do I have to inform my customer [buyer]?

The applicable law is RPL 443-a(1)(b).

If you are a seller's agent in this situation dealing with a buyer that you don't represent, which appears to be the case by way of your terms client and customer, then there is no affirmative obligation to inform the buyer about the suicide. More so, you would be breaching your duty of confidentiality to the seller if you gave this information. Instead, you can only answer the question if the buyer asks in writing and you inform your client and your client approves of you answering.  

Tuesday, August 11, 2015

Supreme Court Rules To Remove Housing Discrimination: Landlords And Developers Beware

Wednesday, August 05, 2015

The 5 Most Common Landlord/Tenant Disputes

Long Island is developing its rental inventory in droves with mixed-use downtowns and multi-family construction. We saw development first boom in the emergence of Patchogue. Now it’s Riverhead, with the recent sale of the Sears building and the prospective redevelopment of the site to include 160 apartments in a revitalized downtown. Yet, this is nothing new to the East End, where our summer rental community has supported the economy for decades. While rentals offer a great housing option that supports the community, they also involve many disputes that find their way into our courts.

Read the full article in Dan's Papers, written by Andrew Lieb, Esq. here.