LIEB BLOG

Legal Analysts

Thursday, October 20, 2011

Sellers Concession without disclosed Gross-up = Subterfuge

So says the Committee on Professional Ethics to the New York State Bar Association in Opinion 882 (10/14/11). This Opinion is a follow-up and clarification of Opinion 817 (2007), which has been the subject of great discussion in the real estate world since its issuance.

In essence, these Opinions discuss the ethics of increasing a purchase price, to in effect, increase a mortgage, to thereafter pay the buyer's closings costs (which is traditionally a sellers concession), but now a seller's concession without a concession on the part of the seller. The issue is this: A seller's concession with a gross-up changes the Loan to Value ratio and consequently the risk of the investment for the mortgagee. Further, this risk is shared with whomever later purchases the mortgage coupled with tax assessors and the like. Yet, without full disclosure in all of the closing documents, future mortgage purchasers / property assessors will not be placed on appropriate notice of the increased risk, consequently paying more for the purchase than the value; hence, the Subterfuge.

In essence, the closing parties circumvent the Banking Law's restrictions on closing costs to mortgage ratios & manipulate public records on closing prices.

The Opinion goes on to state a lawyer, whether the seller's, buyer's and lender's, who participates in a transaction with a sellers concession and gross-up without full disclosure in all closing papers is violating Rule 8.4(c) of his ethic's rules.

Lastly, the Opinion states that a lawyer is not discharged from this obligation by the suggestion of the mortgage broker, loan officer or other employee of the bank. Therefore, its a non-waivable requirement to disclose a sellers concession and gross-up.

The disclosure required is that: "The sales prices has been increased by a sum equal to the seller's concession". Write it in all your real estate papers and your are in the clear. Now lets go close some deals.

Wednesday, October 19, 2011

Limits on the Roommate Law

Just about a week ago, I was co-instructing our Real Estate School’s course, the Long Island Landlord. We were presented with a thought provoking question about the ability of a landlord to limit the occupants in a rental premises. The buzz and chatter in the room that commenced when we mentioned the roommate law made it clear that this was a hot topic.


If you don’t know about the roommate law, you can read it by clicking here. This law has been around since 1983 for the protection of tenants and occupants, not landlords. So it's about time to know this law.


It is essential for a landlord to know and understand the roommate law because it enables a tenant to prevent an eviction regardless of the terms of the lease. Yet, it is further important for tenants to know and understand what their rights are with relation to occupancy so that they can exercise those rights in preventing such an eviction. This is true particularly with regard to family members who are afforded the greatest rights under the law.


While the rights of immediate family members of the leasing tenant, as defined in the Real Property Law, are great, other roommates are not afforded such broad protection. Nonetheless, and as a matter of illustration, Section 8 landlords can impose occupancy restrictions regardless of the roommate law. This is because the law states: “Nothing in this section shall be construed as invalidating or impairing the operation of, or the right of a landlord to restrict occupancy in order to comply with federal, state or local laws, regulations, ordinances or codes”.


Consequently, we always advise landlords to be familiar with all the laws applicable to their rentals as some lease provisions are void as a matter of public policy according to the tenant-friendly New York State laws.

Friday, October 14, 2011

Free Foreclosure Seminar - Suffolk Bar