LIEB BLOG

Legal Analysts

Wednesday, May 09, 2012

Why Should the Mortgage Forgiveness Debt Relief Act and Debt Cancellation NOT be extended past 2012?

Why Should the Mortgage Forgiveness Debt Relief Act and Debt Cancellation NOT be extended past 2012?

In short, I don’t know. According to a study released by CNN.COM in early March, the number of homeowners who owe more on their mortgage(s) than their properties are worth – more commonly referred to as being “underwater” - increased by 3.7% during the last three (3) months of 2011. My contention is that this trend will continue, and the Act provides relief for, among others, homeowners who must resort to short-sales in order to get out from under this mess. Consequently, these homeowners who sell their properties for less than what they owe on their mortgage(s) are saddled with substantial tax ramifications unless they fall under one of the exemptions of the Act. Should the homeowner not qualify under the principal residence or insolvency exemptions (the two exemptions germane to the sale of real property), he or she will have to report the difference in price between the sale of the property and the amount owed as income.

Please see the following link to the IRS for more information concerning the above and let’s hope the Act is extended past 2012; not only for those who may benefit from it, but also for the benefit of the overall economy.
http://www.irs.gov/individuals/article/0,,id=179414,00.html
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Unauthorized Practice of Brokerage

Real Estate Commissions ,
Unauthorized Practice of Brokerage
Its often said that real estate agents are engaging in the unauthorized practice of law, but what about CPAs, Financial Planners, Property Managers and the like engaging in the unauthorized practice of real estate brokerage. Better yet, what is real estate brokerage in the first place?

Lets start with the Department of State's take on the matter. On their website, the Department of State has a FAQ section for Real Estate Salespersons that reads as follows:


If I am a real estate management company, do I need a real estate broker's license?
That depends on what services you provide. If you collect rent or place tenants in vacant spaces on behalf of your landlord client, the answer is yes. If, on the other hand, your services are strictly maintenance, the answer is no. you are not acting as a fiduciary (not handling another person's money).

So, does this provide the answer? Some may think yes, but when you dig a little deeper you should think about the words utilized in the answer as they actually present more questions than just simple answers. The key word that comes to attention is the term "tenants". After all what is a tenant and what isn't?


To illustrate with some questions:

  • Is the NYC Park Commission granting a private corporation the right to operate an enterprise on a percentage rental basis for 20 years a tenancy? 
  • What about a business broker affecting a lease of an operating hotel premises?
  • How about renting a cooperative unit on an hourly basis?
Are these tenancies?

To learn the answer to these illustrations and more, click here and read a decision by the State of New York, Department of State, Office of Administrative Hearings. This is the best guidance available on this topic. 

It appears that the test is if a transaction concerns "an estate or interest in real property" it requires a brokerage license where providing accommodations to transient guests does not require such a license. 

Now, it is suggested to check your local Town or Village Code, which often has a definition of transient to see if the specific activity you are engaging in is transient or "an estate or interest in real property". Moreover, you will not want to rest on that definition and instead do further research if the interest provided is a license (not brokerage) or a tenancy (brokerage). Yet, the easiest solution for property owners is to hire a licensed broker when dealing with real estate negotiations, sales or leases. This way it is unnecessary to analyze whether the activity in question is viable or instead constitutes the unauthorized practice of real estate brokerage. 
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Home Sale Can't Stop Divorce

Home Sale Can't Stop Divorce

A most fascinating case was just decided in Manhattan Supreme Court where the parties had agreed (stipulated) that until their residence was sold "neither party shall file any papers to obtain a judgment of divorce". 

So the question before the Court was: "whether the parties can condition their divorce upon the mercurial nature of the New York City real estate market."

The Court would have none of that and deemed this clause unenforceable because the Court felt that public policy was to make a divorce less burdensome and to remove as many roadblocks to its conclusion as possible. 

What is interesting from this case is how people utilize economic coercion as negotiation leverage in a divorce. Had the clause remained, the parties would have either had to accept a lower sales price or remained married. This would have allowed the party less motivated to sell to get concessions from the other party in other aspects of the divorce in order to permit the sale. 

For real estate professionals, you now know that in Manhattan a divorce should not block a sale of the property as the Court doesn't see the sale of real estate as a reason to stop a divorce. Instead, the divorce should go forward and as the Court says: " If the parties are unable to accomplish the sale themselves, then the court can force a sale (CPLR § 5103), appoint a receiver (CPLR § 5106), or order a conveyance by a sheriff (CPLR § 5107)"

To read the case in full, click here. 
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Great class last night - Property Management

Great class last night - Property Management
I just want to send a special thank you to the Mattituck-Laurel Historical Society for donating their fabulous school house for our continuing education course last evening. It was an experience that I will remember for a lifetime. What a thrill to each in an 1840s working school. I only wish that they had left the rulers to smack the naughty students with.

If you don't know about the Society, click here to learn more. While I loved the experience, the Society needs your help to stay erect and safe. In fact, we discussed the need for a walkway from the parking lot to the school in order to make visiting the site safer. Please do your part and donate to this worthy cause by becoming a member. Just click on this form to join.
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Friday, May 04, 2012

Cooperative House Rules Illustrated

Cooperative House Rules Illustrated

A case decided yesterday, 5/3/12, perfectly illustrates the power of cooperative boards. The case addresses whether the board, under the Business Judgment Rule, may create a house rule that restricts subletting. In the situation in the case the restriction imposed was as follows:

 "no [l]essee shall be permitted to sublet the whole or any part of an apartment or renew or extend any previously authorized sublease for more than two years during any four consecutive year period unless consent thereto has first been duly authorized by a resolution of the Directors or . . . by [l]essees owning at least 66⅔% of the then issued and outstanding shares of the Corporation."

The Appellate Court held that the board did have the power to enact such a rule under the Business Judgment Rule. Even going further, the Court rejected a prior decision to the contrary stating cooperative boards have “the authority to freely adopt a new policy in the legitimate interest of the cooperative”.

To read the decision, click here. 
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