LIEB BLOG

Legal Analysts

Friday, January 09, 2015

Real Estate Agent Successfully Obtains Permission to Use Drone for Aerial Photography

Want to use a drone to capture aerial photos of your listings? Douglas Trudeau of Tierra Antigua Realty in Tuscon Arizona has become the first Real Estate Agent permitted by the Federal Aviation Administration (FAA) to use a drone in connection with real estate brokerage.

As you may recall, a previous Lieb at Law Blog discussed the FAA rules which requires all sorts of licenses, certificates and flight plans in connection with "commercial" drone flights.  In that blog, we explained that the FAA specifically targeted real estate agents using drones to take aerial photos as an example of regulated commercial flight.  Remember, we are talking about two to three pound quadcopters, not full sized aircraft here.

Douglas Trudeau has waded through the tiresome process of obtaining the necessary approvals for such a commercial flight and amount of red tape is undeniably absurd. First, Mr. Trudeau had to petition the FAA for an exemption.  The FAA's response is a daunting twenty-six page analysis of the various rules, statutes and regulations which much be examined and excused prior to permitting Mr. Trudeau to use his drone.  Read the FAA's response for yourself here.

In granting Mr. Trudeau an exemption, the FAA analyzed each of the following factors:
  1. The type of aircraft used, including: size, speed, payload and weight;
  2. The qualifications of the pilot (Mr. Trudeau has a private pilot's certificate, but not a commercial license);
  3. The operating parameters of the anticipated flights, including: height, duration, range, tracking, interference with regulated airspace, and emergency contingency planning; and
  4. Public Interest
After deciding that it was as basically harmless for Mr. Trudeau to fly a toy, the FAA granted the exemption with a measly thirty-three conditions and limitations on his flights, including the following:
  1. The drone must remain in Mr. Trudeau's unassisted vision at all times;
  2. Mr. Trudeau must utilize a visual observer who also must maintain unassisted vision of the drone at all time;
  3. Mr. Trudeau, as the pilot, must maintain a private pilot certificate and at least a third-class medical certificate;
  4. Mr. Trudeau, before operating the drone to take photos, must log a minimum of twenty-five hours of flight time with a drone and at least five hours with the specific drone he is going to use for the flight.
  5. Prior to any commercial operation, Mr. Trudeau must have successfully executed at least three take-off and landings with the drone within the past ninety days;
  6. No night flights;
  7. Not within 500 feet below or 2,000 feet horizontally from a cloud;
  8. Mr. Trudeau must obtain an Air Traffic Organization issued Certificate of Waiver or Authorization prior to any operation and must request a Notice of Airman not more than seventy-two hours in advance, but not less than forty-eight hours prior to any operation; and
  9. Flights cannot take place within 500 feet of non-participating persons, vessels, vehicle or structures unless it will be "safe" for those non-participants;
Here's to hoping that the FAA changes its stance on small drone operations because the current process is cumbersome, to say the least. 

Wednesday, January 07, 2015

Important Decision on Right of First Refusal in Foreclosure Sale

An important decision came out on December 23, 2014 regarding the right of first refusal—the requirement that a property owner, if and when he is offered to sell his property to a third party, must first present that offer to the party who previously entered into a contract which gave that party the right to purchase the property before others. The right of first refusal is easy to understand if we use a basic example. Let’s say Allison wanted to sell her real estate to Bobby but Carrie had a written right of first refusal for the property in question. Allison would first get an offer from Bobby and then, offer that to Carrie. If Carrie accepts the terms set by Bobby, she can purchase the property. If not, Bobby has a deal to buy the property.

Here, in the case, Centech LLC v. Yippie Holdings LLC, the issue was whether a party who had a right of first refusal could exercise it based upon a foreclosure sale. The Court found that the right of first refusal was not applicable in the foreclosure sale because the language of the right of first refusal did not clearly provide for a foreclosure sale as a trigger to the right of first refusal.

The takeaway is that when you have a right of first refusal, make sure that it clearly sets forth the trigger to our ability to exercise your right. Vagueness can prevent you from having a right that you otherwise believe to be yours. 

Disclosures in Crowdfunding Projects

Crowdfunding, a way of funding a project from a large number of individual contributions, has become very popular in the commercial real estate world as a result of the JOBS Act of 2012, which eased securities regulations to give small businesses better access to funding. For example, Fundrise, a leading crowdfunding website, allows individuals to invest in commercial real estate projects, such as hotel or restaurant construction, for a low amount of money, opening up investment opportunities to everyone and not just wealthy accredited investors.

Now that crowdfunding is on the rise, it is important that everyone who is looking to invest in a project knows that they are entitled to certain disclosures under law. Rule 506(b) of Regulation D under the Securities Act is a new rule as of 2013 which established specific requirements to determine whether or not a transaction or project is exempt from Securities Act registration. When securities (i.e. investments) are registered, they provide important disclosure information to investors, such as a description of the company’s properties/businesses, a description of the securities, the company’s management information, and the company’s financials. Under Rule 506(b), some companies do not need to register their securities if they do not advertise their securities to the general public and do not sell the securities to more than 35 non-accredited investors. Therefore, it should be noted that if companies on Fundrise want certain transactions or projects exempt from registration, they must be careful not to sell securities to more than 35 non-accredited investors. However, these companies, despite being exempt from registration, must still give the same important disclosure documents and financial information to non-accredited investors and must answer questions from non-accredited investors. This rule is in place to protect individuals, who are not as knowledgeable or savvy as accredited investors, from being victims of fraud or misrepresentation.

If you are thinking of investing in a real estate project in the near future, remember that you are entitled under law to certain disclosures about the project and company in question. Regardless of any exemption, this information must be given to you as long as you are a non-accredited investor.

Click here if you would like to know the top 60 real estate crowdfunding platforms.

Friday, January 02, 2015

TAX RELIEF GRANTED FOR UNDERWATER HOMEOWNERS

Terrific news is here with a tax break for those who sold or lost their underwater homes to foreclosure in 2014.

The Mortgage Forgiveness Debt Relief Act (MFDRA) was extended through 2014 by the Tax Increase Prevention Act of 2014 on December 19, 2014.

Homeowners who were forgiven debt a/k/a “cancellation of debt income” (difference between the total amount of the mortgage still owed at closing and the sale price or fair market value of the property) resulting from a short sale, deed in lieu of foreclosure or foreclosure sale, will have the forgiven debt excluded from their taxable income for transactions completed through 12/31/2014. 
             
The MDFA previously expired on December 31, 2013.

So, for those who lost a home to foreclosure or a short sale in 2014, you will receive a nice holiday tax break when you file your taxes in the new year.  

Thursday, January 01, 2015

Real Estate Brokers are statutorily permitted to give rebates

A new line of negotiating brokerage commission is now available in the State of New York.

Buyers can now ask for a rebate of the seller's agent's brokerage commission in exchange for buying the property.

So, buyers should inquire of their prospective agents if the agent is offering a rebate on the transaction in consideration for being hired by the buyer. Alternatively, unrepresented buyers should inquire of the seller's agent if they offer a rebate in consideration of the buyer's offer to consummate a transaction.

At the least, it never hurts to ask.

Think about it ... a buyer's broker can now promote their services by incentivising prospective buyers to work with them by offering a rebate of the co-brokerage commission offered by the seller's agent.

To illustrate, a seller offers his seller's agent 6% on a deal whereby the seller's agent offers a buyer's agent a 3% share of that commission, in turn, for procuring a buyer, under a co-brokerage agreement. Now, that buyer's agent can motivate buyers to come to that deal by offering prospective buyers 1% of that 3%, or an alternative discount on the deal, for working with that buyer's agent.

Before the enactment of this statutory amendment, brokers did rebate commissions, but they have done so under a gray legal framework where there was no express authority for the practice (beyond a No Action Opinion Letter by the Department of State dated February 2008) and consequently it never became an overt marketing tactic by buyer's agents. Look for that to change.  


Real Property Law 442 was amended as 2014 came to a close. It now reads as follows (capitals represent additions to the statute):

Splitting commissions.
1. No real estate broker shall pay any part of a fee, commission or other compensation received by the broker to any person for any service, help or aid rendered in any place in which this article is applicable, by such person to the broker in buying, selling, exchanging, leasing, renting or negotiating a loan upon any real estate including the resale of a condominium OR COOPERATIVE APARTMENT unless such a person be a duly licensed real estate salesman regularly associated with such broker or a duly licensed real estate broker or a person regularly engaged in the real estate brokerage business in a state outside of New York; provided, however, that notwithstanding any other provision of this section, it shall be permissible for a real estate broker to pay any part of a fee, commission, or other compensation received to an unlicensed corporation or an unlicensed limited liability company if each of its shareholders or members, respectively, is associated as an individual with the broker as a duly licensed associate broker or salesman.

2. Furthermore, notwithstanding any other provision of law, it shall be permissible for a broker properly registered pursuant to the provisions of article twenty-three-A of the general business law who earns a commission on the original sale of a cooperative or homeowners association interest in real estate, including condominium units to pay any part of a fee, commission or other compensation received for bringing about such sale to a person whose [prinicipal] PRINCIPAL business is not  the sale or offering of cooperatives or homeowners association interests in real property, including condominium units in this state but who is either: (i) a real estate salesman duly licensed under this article who is regularly associated with such broker; (ii) a broker duly licensed under this article; or a person regularly engaged in  the  real estate brokerage business in a state outside of New York.
Except when permitted pursuant to the foregoing provisions of this section no real estate broker shall pay or agree to pay any part of a fee, commission, or other compensation received by the broker, or due, or to become due to the broker to any person, firm or corporation who or which is or is to be a party to the transaction in which such fee, commission or other compensation shall be or become due to the broker; PROVIDED, HOWEVER, THAT NOTHING IN THIS SECTION SHALL PROHIBIT A REAL ESTATE BROKER FROM OFFERING ANY PART OF A FEE, COMMISSION, OR OTHER COMPENSATION RECEIVED BY THE BROKER TO THE SELLER, BUYER, LANDLORD OR TENANT WHO IS BUYING, SELLING, EXCHANGING, LEASING, RENTING OR NEGOTIATING A LOAN UPON ANY REAL ESTATE INCLUDING THE RESALE OF A CONDOMINIUM OR COOPERATIVE  APARTMENT. SUCH FEE, COMMISSION, OR OTHER COMPENSATION MUST NOT BE MADE TO THE SELLER, BUYER, LANDLORD OR TENANT FOR PERFORMING ANY ACTIVITY REQUIRING A LICENSE UNDER THIS ARTICLE.


Read NYSAR's Memorandum in Support of this legislation, which quotes a 2008 opinion letter of the Department of State speaking specifically about using these rebates "to attract a new customer or client".  

At the least, this legislation represents a job well done by Zeldin and Lavine, the sponsors of this legislation, to clarify a gray area of real estate brokerage license law.