Sleeping Epiphany of Last Night's Course

As discussed at last night's course - Conflicts of Interest - us attorneys often wake in the middle of the night and fear we gave inaccurate advice or need to revisit a topic with a client. Well, I realized while sleeping, awaking at 3am to email myself a note that I may have discussed the wrong term of art concerning HUD's Regulation X & RESPA. The proper term at issue is "required use". Although alluding to the term in the class, I awoke to realize I may have said something otherwise, while nonetheless addressing the very same topic.

This topic was originally blogged about on July 26, 2010 & addressed HUD's request for comments. The request can be found at this link, but has long since expired.

Currently, the regulation reads as follows, but as you can tell the regulation greatly impacts the job of a real estate agent & you should not only remain informed, but have your voice heard on any future changes to the definition.

Required use means a situation in which a person must use a particular provider of a settlement service in order to have access to some distinct service or property, and the person will pay for the settlement service of the particular provider or will pay a charge attributable, in whole or in part, to the settlement service. However, the offering of a package (or combination of settlement services) or the offering of discounts or rebates to consumers for the purchase of multiple settlement services does not constitute a required use. Any package or discount must be optional to the purchaser. The discount must be a true discount below the prices that are otherwise generally available, and must not be made up by higher costs elsewhere in the settlement process.

Obtaining a Certified Copy of your Deed in Suffolk County

An important warning about companies defrauding consumers with between $50 to $100 of unnecessary fees for a document you may not need right now.

The letter has been redacted to protect the privacy of its recipients.

All should know that the letter comes with a slip to fill-out and to enclose $5 in order to receive a certified copy of your deed. Its that easy. If you didn't receive the letter, simply utilize the secure online site, discussed in the letter, to order a copy of your deed.

An excerpt from our continuing educational classes - register now!

Foreclosure & the Economy: The Short Sale Class

9/13/11

The Biggest Title Company or the BEST

While at BB Kings this week I got into a heated discussion about the largest title companies & it got me thinking is bigger always better?

Before we get to that thought, a great resource to learn about title companies & their respective market shares is the American Land Title Association's website - http://www.alta.org/industry/financial.cfm. There you will learn that many of the title companies are just subsidiaries of larger parent companies. For example, during my conversation someone argued that Chicago Title is the largest and therefore the best. Well it turns out that Chicago is only the largest when its included with Fidelity, Commonwealth and Alamo within the Fidelity Family of Companies. Nonetheless, First American Title Insurance Company has 24.6% market share standing alone while Chicago only has 16.9%. This renders First Am the largest. So, the numbers can be skewed to your liking.

Yet, is bigger better? In a way it is. You see in title companies, which are insurance companies size does matter. Except we are not concerned with market share, but instead assets. The reason is the company with the largest assets has the greatest ability to meet its insured's needs. Although this may also be skewed to your liking because assets may be compromised by risk. Therefore, one should really look at a company's Best's Capital Adequacy Ratio (BCAR), which evaluates and qualifies the adequacy of a company's risk-adjusted capital position. To learn more about rating title insurance companies see information about Best's Rating Methodology by clicking here.

Real Estate Opportunities from Natural Disasters

While reading a study out of the University of Chicago entitled "Payday Lenders: Heroes or Villains?", I was struck by the following statistical fact - foreclosures rise in communities faced by a natural disaster by 4.5 per 1,000 homes. Now this is obviously a bad thing, people getting foreclosed upon, but its also a fantastic opportunity for real estate investors. If you recall the TV pictures of the ski towns in Vermont and upstate New York following Hurricane Irene, its clear a natural disaster struck these areas very hard.

Now, I wonder would if this statistic for foreclosures after a natural disaster would be even higher if the community affected relied upon seasonal rental income to sustain. Meaning, in a ski town without a ski lodge wouldn't less people rent a ski house, causing even more foreclosures or distressed homeowners than the 4.5 per 1,000.

Regardless, the team at Lieb at Law always lives by the motto "don't dwell on the past but enhance the future". So, speaking of enhancing, all of you real estate investors out there should be focusing on seizing the opportunity of the Hurricane Irene natural disaster. Yes, no one wants a storm, a fire or a flood, but we cannot control these occurrences. Yet, we can control how we respond. I suggest responding with investment in the hardest hit towns. Seize the opportunity. Now go make a fortune.

Surveys are expensive!

Whenever a Seller does not have a copy of a survey, the Buyer runs into the situation of having to order a new survey. Surveys are costly and sometimes time consuming, especially during certain times of the year. If the premises is located in the Town of Brookhaven an owner of real property or a purchaser in contract to buy real property, may obtain a copy of a survey from the Town of Brookhaven Assessor's Office at no cost. While there is no guarantee that they will have a survey on file, nor that the survey will be guaranteed to a Title Company (required to insure the boundary lines of the premises), nonetheless it is well worth the attempt. A third party can also request a copy of a survey for a fee. The catch is that the fee is paid upfront and not returned should they not have a survey on file. Either way if a survey is on file it will cost the Buyer much less than ordering a new one.

New Requirements for FHA Loan Modifications

Effective, October 1, 2011, HUD has issued new requirements for borrowers to successfully complete a trial payment plan prior to being approved for a loan modification. To read the requirements embodied in Mortgagee Letter 2011-28, click on the attached link.

Interestingly, the letter indicates an incentive fee for lenders who give the modification after a successful trial plan pursuant to the Letter's rules. Its important for borrowers to understand the requirements put on lenders in order to get those incentives because lenders are going to want the money and therefore mandate compliance with the trial plan rules.

Some Good Storm News - Homeowners Insurance

To Start:

Take a look at your insurance policy before you do anything about your claims. Read the policy, review your deductibles, determine the procedure, but act quickly so that the insurance company can't disclaim coverage for untimely notice. Yet, read your policy and learn your rights. Remember, insurance companies are not excited to pay claims and you need to be a great advocate for your own rights, you may even want to hire a lawyer if you get into a dispute with your insurance company about coverage. If you believe that they should pay based upon what your policy says, don't just take their denial as being correct, fight it. Be clear, each policy is different, so you have to read your policy before you act.

Something Interesting:

It's likely you have a Hurricane Deductible in your policy. New York is one of many States that have Hurricane Deductibles in homeowners' policies. These deductibles are a charge of a percentage of the claim, instead of a flat fee, prior to the policy paying. Some are in the neighborhood of 4% of a claim. So, it can get quite pricey. The States (territories) that have these deductibles are Washington DC, Alabama, Connecticut, Delaware, Florida, Georgia, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Texas, and Virginia.

Something Good:

The reason it's a good idea to look at your policy is that this deductible may not be triggered by a tropical storm. Each policy is different, but the downgrade in the storm may have saved you thousands of dollars in your deductible. Good luck.

Lead Disclosure Law is Limited

Residential Lead-Based Paint Hazard Reduction Act

In a landlord-friendly decision, the Appellate Division, Second Department (with jurisdiction over Long Island, among other places) just ruled that minor children of tenants cannot sue landlords for injuries resulting from exposure to lead paint under this Act even if they take possession with the tenant at the beginning of the tenancy.

To be clear, we are talking about the law that requires disclosure of known information on lead-based paint and lead-based paint hazards to a purchaser or lessee. A law that real estate agents should be very familiar with.

The Court held that the purpose of the act was to establish disclosure obligations triggered upon the lease or sale of property. The case is Brown v. Maple3, LLC and can be found by clicking here and the applicable law, RLPHRA, is 42 USC 4851. The clear rule is that infants residing with lessors are not within the zone of interest protected by the statute. The statute is about disclosure, not about strict liability for injuries.

Nonetheless, the Court did note that the door is not closed on the minor children and suggested that they instead pursue a claim under common law negligence. This means if you are injured in a residence as a result of lead exposure, your rights may be limited, but that you still do have rights and you should pursue them.

There's a storm front coming - what if the house is destroyed pre-closing?

Buyers: The general rule is that if you have not taken possession or closed the deal, you can cancel the contract because of a mutual impossibility of performance. Nonetheless, you are in a great position because you may also demand performance with a price reduction. The price reduction would be the fair market value of what was lost in the storm as determined by an appraisal (this would likely be litigated as I'm sure the seller's appraisal would differ with yours). Yet, should you wish to cancel the contract, you can get your deposit back and that is the direction you will likely go. Anyway, lets hope the storm changes course and you can close on a fabulous property that's now in contract.

Sellers: You may have to take a price reduction as stated above, but hopefully your homeowners policy covers your loss. Nonetheless, its likely the deal will just be cancelled and you will have to rebuild.

Disclaimer: This advice assumes material damage to the premises and is based upon NY General Obligations Law 5-1311(1)(a)

Cell Phone Deposits

Recently, there have been developments in technology, notably, smart phone applications which allow persons who bank at large franchises to take snapshots of the front and back of a check in order to immediately send it for deposit. This can be useful-or detrimental-when it is done by a Seller at a real estate closing.

Cell phone applications now make available the option of taking a photograph of the front and back of check for immediate deposit.

Beware of this as the Buyer because Sellers should not be depositing checks without Buyer's awareness or consent, or until such time has passed that it is acceptable to do so.

This can be an extremely efficient way to deposit funds and move forward in a deal in the best case scenario-when everything goes smoothly. In fact, this can help where Seller is going to turn around and purchase a house after selling their former residence.

However, it does not always work out where that is appropriate. Checks should be monitored because there may be situations where they are initially presented (and deposited unbeknownst to the Buyer). If Seller immediately deposits, then the deal goes bad by bickering, which we all know is possible, by the end of the closing Seller now has money they are not entitled to.

Modification Uptick

Just a matter of anecdotal evidence, for whatever that is worth - this firm has seen a drastic rise in the amount of modifications & short sales approved this month.

This confirms our thoughts that workouts come in waves & to keep reapplying even after a denial, until you get closer to what you want.

Opt-Out Deadline Approaching Quickly

The IRS released Notice 2011-66 on August 5, 2011 which requires form 8939 to be filed by November 15, 2011 in order for executors to opt-out of estate taxes on 2010 decedents. Exemptions for extending the deadline are extremely limited so this should be viewed as a hard-fast rule.

If no executor was named for decedent's estate, for example, if the entire estate was part of a living trust, then the person in actual/constructive possession may also use this form.

This is important to note as opting out of estate taxes is no longer automatic. If the election is made by filing 8939, the carry over provisions of Section 1022 are then applicable.

Keep an eye out for the form as the deadline is approaching and the new form is not yet available on the IRS website.

How to get my commission?

So you find a purchaser who is ready, willing & able, but the seller (your client) nonetheless refuses to pay. What do you do?

You look to your listing agreement and see what rights you have.

Regardless of the listing agreement, 2 rights you never have are that:

1) You can't file a Lis Pendens

2) You can't serve a motion for summary judgment in lieu of complaint (CPLR 3213) & must litigate the matter with a Summons and Complaint.

You may have to arbitrate pursuant to your listing agreement and you certainly should be mindful of Real Property Law 294-b, which permits you to file an affidavit of entitlement with the County Clerk and demand that your client deposits your claimed commission in the Clerk's office. Moreover, your client's failure to so deposit your commission will entitle you to costs and attorneys' fees in your subsequent litigation with the client.

Yet, no matter what you do, unfortunately, the Courts have uniformly stated that a real estate commission isn't entitled to a lien on real property pre-judgment. Maybe, its time to increase that lobbying.

Its time to get paid.

Divorcing couples not subject to capital gains tax on their real estate

In contrast to the rule on transfer tax, just discussed, Federal Law provides that such a transfer of property incident to divorce does not work a gain or loss concerning capital gains tax; hence no stepped-up in basis results.

§ 1041. Transfers of property between spouses or incident to divorce

(a) General rule

No gain or loss shall be recognized on a transfer of property from an individual to (or in trust for the benefit of)—

(1) a spouse, or

(2) a former spouse, but only if the transfer is incident to the divorce.

Divorcing couples subject to real estate transfer tax on their real estate

Recently, I attended a meeting of divorce attorneys in a group called the Collaborative Lawyers Association of New York (alternative dispute resolution for divorce). At the meeting, our group had mixed feelings if a transfer of real property between spouses at divorce was for no consideration (no tax) or for fair market value (tax). Ethically, the attorneys agreed that this matter required further research.

As it turns out there is a taxable event according to the New York Code of Rules and Regulations.

20 NYCRR 575.11(a)(10): A conveyance from one spouse to the other pursuant to the terms fo a divorce or separation agreement is subject to tax. (There is a rebuttable presumption in such case, that the consideration for the conveyance, which includes the relinquishment of marital rights, is equal to the fair market value of the interest in the real property conveyed.).

The takeaway is that even though you and your spouse own a piece of property already, when you transfer it to each other as part of a divorce settlement, you will be taxed or you are committing tax fraud.

BE WARNED.

Dual Agent with Designated Sales Agent - Who is the Dual Agent?

The benefits of being a teaching law firm is that we get to learn from students in their respective industries what issues they are actually having in practice before we litigate disputes.

The question I got today was this: Who is the third person in a real estate deal with a dual agent with designated sales agent? Do we have to split our commission with this third person? I just don't get it. Must we pick another person in the office to serve as this third person.

Lets be clear - the third person is technically the broker of record at your office, but no there is not another agent involved in the transaction nor do you have to further split your commission. Instead, the theory of a dual agent with designated sales agent is this:

• Both agents (listing & buyers) work for the same company
• At the company (brokerage house) there is a boss (broker of record)
• Both agents (listing & buyers) have to report to the boss if the boss so requires
• While reporting to the boss confidences of the seller or buyer may be required to be shared
• The seller and buyer should know this limitation on their confidences before retaining the agents and either consent to it or not permit a dual agent with designated sales agent representation

If you have any more questions on this topic I suggest attending our next Conflicts of Interest class where this topic is discussed in more detail.

Estate Gift Tax Rates to Change

The President's 2012 budget, released in mid-February seeks to return the Federal Gift tax exemption to $3.5 million, which was temporarily increased to $5 million, and the gift and generation skipping to $1 million, with a 45% transfer tax rate. The senate is divided. Republicans would like to remove the estate tax all together, while both would agree on $5 million exemption, however disagreeing on the tax rate (45% or 35%).

Further, it seeks to make portability permanent, meaning, a spouse can use their spouse's unused exemption permanently, whereas now it is set within specific time limits.

Also sought is a 10 year minimum and remainder value greater than zero for grantor retained annuity trusts (GRAT). GRATs allow transfer of wealth between family members at a reduced gift tax cost if the grantor survives the term. Dynasty trusts will also be limited (used in jurisdictions that do not follow the common law rule against perpetuities) with a 90 year maximum on new trusts or new monies to existing trusts.

Additionally, the new budget seeks restrictions by way of a new class of tax restrictions on valuation discounts which allow discounts in the valuation of family owned businesses.

Look out for changes nearing 2012.

Anti-Deficiency in Short Sales: California

On July 15, 2011, a new law was enacted in California which prohibits deficiency judgments in short sale transactions. Short sale transactions are sales by homeowners to third parties, requiring lender approval, for less than the amount of the loan.

This applies to all 1-4 unit residential mortgages, whether first or later, and to borrowers as individuals, partnerships, LLCs, or corporations.

Originally, a law was enacted which prohibited deficiency judgments, but applied only to first residential mortgages by individuals.

This law may affect the bargaining position of homeowners with lenders regarding short sales, as it becomes a less attractive option for a lender where they are unable to get a deficiency judgment for the remaining amount of the loan. Many times lenders do waive this right, however, taking it off the table from the outset may be damaging to a homeowner's ability to procure the same, and further limits their options in foreclosure.

Although this law has not yet been enacted in NYS, California's enaction of the same, as well as the current state of the market and housing may appeal to NYS legislators and therefore it is something to keep an eye on into the future.

HUD SAFE ACT

On June 30, 2011, HUD (The U.S. Department of Housing and Urban Development) enacted the "Final Rule" for Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE), which lays out the minimum requirements for states concerning licensing and registration of mortgage loan originators.

This is important to pay attention to as licensure requirements are necessary in order to qualify as a loan originator, however it is also important to note who is exempt from the same. Further inquiry must always be made into state laws as they are free to expand on the minimum requirements laid out by HUD. However, after the original passage, states regulated tax-exempt organizations as well, so part of the purpose of this new Act is to remove that power from the states to do that.

This primarily affects non-profit organizations and HUD agencies, which provide services in foreclosure defense and inability to procure housing of financially distressed individuals.

SAFE Act's new standard for licensure is whether one is "engaging in business of a loan originator" and "take a residential mortgage application and offer or negotiate terms of a residential mortgage loan for compensation or gain".

These requirements are not limited to first loans, but also refinances, as these are not modifications, but instead are actually new loans in law and fact.

The new standards, differentiated from the 2009 act, allow HUD agencies and non-profits as exceptions to the requirements by way of codifying their role as different from a loan originator and therefore not requiring licensure. HUD has made it clear that this determination will be made based on the substance of a position, and not on its name. Consequently, a nonprofit's status under 501(c)(3) does not end the inquiry. Further analysis is required regarding the nonprofit's purpose, structure, incentives, and loan options. In fact, 7 criteria are used in order to further qualify:

1. Maintains tax-exempt status under section 501(c)(3) of the Internal Revenue Code of 1986

2. Promotes affordable housing or provides homeownership education, or similar services

3. Conducts its activities in a manner that serves public or charitable purposes

4. Receives funding and revenue and charges fees in a manner that does not incentivize the organization or its employees to act other than in the best interests of its clients

5. Compensates employees in a manner that does not incentivize employees to act other

than in the best interests of its clients

6. Provides to or identifies for the borrower residential mortgage loans with terms that are favorable to the borrower and comparable to mortgage loans and housing assistance provided under government housing assistance programs

7. Meets such other standards that the state determines appropriate

Also excluded from licensure requirements are government employees, bona fide nonprofit organizations that act as loan originators, although only in the course of their duties, and individuals who only engage in modifications or are 3rd party loan modification specialists. However the latter category could be subject to licensure under SAFE, but this is subject to determination of the Consumer Financial Protection Bureau (CFPB) as HUD has chosen not the regulate the same. Further, appendices of SAFE provide examples of the type of person not subject to the Act.

Know Before You Owe - RESPA

Just last week, on July 21, 2011, the Real Estate Settlement Procedures Act (RESPA) was shifted by the Department of Housing and Urban Development (HUD) to being administered and enforced by the Consumer Financial Protection Bureau (CFPB). To visit the CFPB's website, click here.

In one of CFPB's first initiatives, the Bureau is researching Mortgage Disclosure Statements and making changes for the stated purpose of Simplicity. To have your voice heard on this initiative, click here.

The purpose of the Bureau's initiative is to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires the Bureau to combine the 2 page Truth in Lending Disclosure Form and the 3 page Good Faith Estimate Form.

Lieb at Law supports this initiative because we know from experience that home purchasers do not read forms when they are cumbersome. The key is simplicity with easy to access graphical layouts. We hope that this project is only the start in simplifying imperative consumer information for home mortgage borrowers.

Foreclosure Primer by Justice Whelan

If you want to learn about the current landscape of foreclosure law, this opinion is the most thought-out and well drafted I have seen on the topic. Take a read by clicking here.

Also interesting is the discussion of the mortgage expert who was used in this matter by the Defendants. I have never heard of such a tactic and the Court seems dismayed as well as to why a purported expert would advance the papers as opposed to the Defendant's attorney. Yet, the key to this blog post is not what is peculiar, but instead how Justice Whelan so aptly explains the current laws in this field.

This is a must read by attorneys entering the field or anyone facing a foreclosure predicament.

Let's Go Islanders

There is a very important vote for the future of Long Island coming up on August 1st, which is Monday. While this is not a political blog and I am not going to take a stand on the varying estimates that this arena may cost homeowners in tax payments, I will submit that the Islanders remaining on Long Island is crucial for our region's identity, particularly our real estate market.

Growing up on Long Island, I always knew who I was, an Islander. I was a fan of the team since an early age from watching the glory this team creates when they score a goal or knock an opponent to the ground. Yet, that is not why I am a fan or why I am writing a politically charged post on a blog designed for the real estate community. Instead, I am writing to endorse the new arena proposal for only one (1) reason, IDENTITY. I am an Islander. We only have one (1) professional sports team. The team represents us throughout the entire Country as our ambassadors. The team lets out-of-staters know who we are; that we exist. They are the welcome wagon to our beaches, restaurants, entertainment and wineries. The Islanders represent Long Island and it is imperative for our community to keep our team.

Now the owner, Charles Wang, may be bluffing when he states that this is his last go at saving the Islanders in Long Island, but I don't like playing with fire. Let's keep our team. If you are a Nassau County resident I strongly suggest voting YES for the coliseum on Monday.

Thank you. Let's Go Islanders.

Recyclebank

Brookhaven has launched a new program to inspire people to recycle. Check it out at www.recyclebank.com.

When must a residential landlord supply heat to its tenants?

According to a recent Nassau County Case (Olszewski v. Neuman) - A landlord must supply heat once October begins, but is not obligated from May through September.

While this Court made this specific decision based upon its individual facts, it is estimated that the weather during a given year would be applicable to a proper determination of a future case. Also, this decision is not from an Appellate Court and does not constitute precedent that is binding into the future.

Nonetheless, a great black line for those who dabble in the business - Get that heat on before October!!!

Brokerage / Attorney Fee Sharing

Pursuant to Formal Opinion 845 of the New York State Bar Association, while an attorney can act as a real estate broker and gain a commission in a transaction, that attorney cannot share his / her fee with a referring attorney who represents a party to the real estate transaction and suggested that the party utilize the broker.

The rationale for this rule is that the referral fee would work a conflict of interest for the attorney working on the transaction where he / she would be motivated personally to have the deal close to get a commission instead of blocking a deal if such action was in their client's best interest.

The opinion does have an exception though. The exception is that if the attorney's clients gives informed consent to the referral fee and the attorney transfers the referral fee to the client such an action would be acceptable.

Therefore, the takeaway is an attorney cannot benefit financially in any way from referring a broker in a deal in which the attorney is working in a transactional representative capacity. Instead, the attorney must have unabridged motivation to guard the real estate client's best interest.

Question: Should a real estate seller be forced to payoff liens over the sales price?

A seller with a good attorney will not ever run into this problem because the attorney will utilize a short sale contract where a sale is subject to the seller's ability to obtain a full release of liens by way of only the proceeds of sale. In such a situation if the lien holders will not provide a release, the seller can cancel the contract without suffering damages.

Yet, I was called this morning by a contractual purchaser of a property where the contract allegedly does not include any right to cancel for the seller if the lien holders will not release their liens by way of an accord and satisfaction - the traditional short sale scenario. The contractual purchaser wants the property without any liens. Now what?

I suggested that the seller should be able to sue for either specific performance (forced sale with paid off liens) or for benefit of the bargain monetary damages. Yet, I cautioned that not only are the terms of the contract operative and may preclude either remedy, but that this is not often frequented territory and its therefore unpredictable.

What do you think? Should the seller just be able to cancel the contract? Or, should the seller have to reach into their own pocketbook to satisfy existing liens? What happens if there is nothing in that pocketbook?

Remember law is not often easily predictable and many different factors will play into the result.

Maybe, the easiest solution would be for the potential purchaser to just go to the beach and forget the whole thing. It is awfully hot to think of anything else.

Not all lease guarantees are the same

While reading the law journal on this HOT Saturday afternoon I am reminded of a frequent problem in negotiating a lease; strict norms in defining terms of art always restrict creative thought. Be creative in negotiations.

What do I mean?

Often agents, landlords and tenants are so accustomed to how something was previously done that they forget that the purpose of a lease, which is a contract, is to tailor rights and remedies as the parties deem fit in their own unique situation.

What is a guarantee?

In essence, a guarantee is a third-party insuring the debt of a first-party to an agreement. Yet, the case that I am currently reading gives great insight to the job of a real estate agent. This case is about a guarantee of only the first $50,000, not the entire lease, which in the case damages were awarded in the amount of $510,510; a substantial difference. Here, the tenant was liable for the entire $510,510, but the landlord could only collect from the guarantor the first $50,000 and nothing more.

What is the lesson?

A guarantee doesn't need to be for the entire amount contracted between the parties. It can be for whatever amount provides the landlord with adequate additional security in the deal. A guarantee is a contract in of itself and its terms should be carefully negotiated. The key is to be creative. In this case the guarantee was limited to $50,000 even though the language also included attorneys' fees. This means that even though the debt was over $500,000 and attorneys' fees were a lot more, only $50,000 was guaranteed. We often forget in our business to explore the why instead of the what. Yes, landlords will say we want a guarantee; the what. Yet, the question is why? For additional security in the tenancy because the tenant is not credit worthy? Maybe. Or, maybe its just to motivate the tenant not to default because they need a push. If that is the case, getting a guarantee from someone the tenant respects and is ashamed to let down would be enough even if that person is not wealthy enough to guarantee the lease and maybe that person will not need to be on the hook for the whole amount to accomplish this if its the only way to convince the person to provide a guarantee.

The lesson of this blog is to always not assume that something means what you think it does. A guarantee, can be limited to a Good-Guy Clause where the guarantee only covers use to date of exit from the premises or a guarantee can, more importantly, mean anything that the negotiating parties want it to. Stop trying to speak like a lawyer and use terms of art. Instead, think about what the parties want to agree to by talking to each of them about their concerns and desires and find the terms of art to reduce it to writing later or better yet, hire a good lawyer to do that later.

Remember, contract law is party defined law. So define the law that you want. Real estate agents' jobs in lease negotiations is to spark conversation, to encourage ideas and to help find a meeting of the minds. Good luck and stay cool, its hot out there.

Emergency Homeowners' Loan Program

It’s Not Just HAMP Anymore

Another great program that clients often use when facing foreclosure in the Emergency Homeowners' Loan Program (EHLP). On another note, another awful name for a program if you want people to remember it. Anyway, this program is great and particularly for real estate agents struggling to make their payments.

Why you ask? Well the reason is that its target population is defined as:

homeowners who have experienced a substantial loss of income (a reduction of at least 15%) due to unemployment or underemployment caused by adverse economic conditions or medical condition.

Now think about, who in the real estate business has not lost substantial income of at least 15% because of adverse economic conditions? I can’t think of anyone.

So what’s the benefit?

The program provides a zero interest, forgivable bridge loan in order to pay certain arrearages to bring them current, as well as ongoing monthly assistance to help them to make their monthly first lien mortgage payments (including payments of principal, interest, taxes, and insurances). Assistance is limited to a maximum duration of 24 months, or up to a maximum loan amount of $50,000 in mortgage payment assistance, whichever occurs first.

How does it work?

the assisted homeowner's contribution to the monthly payment on their first mortgage will be set at 31 percent of their monthly income at the time of application, but in no instance will it be less than $150 per month. EHLP funds will be used to pay for the remaining balance.

What’s the catch?

In NY, mortgagors’ 2009 tax return cannot have a combined annual income of more than 124,300.00 & their back-end DTI must be less than 55%. Also, this must be concerning your primary residence and you must be at least 3 months delinquent on your mortgage and in imminent danger of foreclosure.

To learn more, click here.

Why am I a great real estate agent? MARKETING

How many times have you heard this one? I am a great marketer. I know how to use Craig's List and my listings are posted on 16 sites.

I am still unclear as to what it means. Is the agent saying they are good because they invest the most money on ads for the house (electronic or hard-copy). Is it because they have a pretty website? How about that their business cards have a picture on it, and of them, not the house? Maybe its because they hire a professional photographer to take staged pictures of the house? Now that would be something and may even add value.

The point of this posting is to share a different perspective of what makes a great real estate agent; PROFESSIONALISM.

There is no question that a real estate agent who is willing to go the extra mile and perform due diligence about the existing deed, survey, marketability of title, current COs & Certificates of Compliance, coupled with the physical condition of the home by way of analyzing a home inspection coupled with many ancillary inspections is a great real estate agent. They add value. Instead of blanket marketing, they can perform targeted marketed. Instead of finding a buyer, they can find a qualified buyer. Instead of sending a binder / memorandum of agreement /terms sheet to an attorney with a sales price and vague financing terms, they can send the actual terms of the deal with specific time frames and expectations of the parties, which have been negotiated and laid out after each party receiving informed consent.

What makes a great real estate agent is NOT an open house. It is NOT an add in the newspaper. Certainly its NOT their business cards.

Don't get me wrong, all of these things are very important. Yet, they should be standard, not extraordinary.

What makes a great real estate agent is learning to be the best real estate professional and as a professional continuing to become more educated throughout a career about land use and mortgage law, construction, contracts, and negotiation skills.

What makes a great real estate agent is self-respect and demanding to know about every ancillary profession to your job.

After all, its your commission on the line. Isn't it?

Here is to the Real Estate Professionals who help to define an industry.

NOFO Rock & Folk Fest 2011

Lieb at Law, P.C. is a proud sponsor of the fabulous event NOFO to take place on the North Fork of Long Island on 7/30 and 7/31/2011 at Peconic Bay Winery.


Not only will there be local wine and beer as well as top musical performances in a vinyard's park setting, but you as a friend of Lieb at Law can use our coupon code to get 20% off of tickets. 


And don't forget, this amazing event is benefiting the non-profit East End Arts Counsel. 


To purchase tickets - go to www.noforockandfolkfest.com 
*Bring the Family - Kids 12 and under are free


DISCOUNT CODE: RealEstateSchool2011

NY Courts Enforce Fed Modification Program

In one of the most important decisions of the year, the Appellate Division recognized the Making Home Affordable Handbook as binding on lenders (servicers) and precluded a foreclosure until its rules were followed.

The newest version of the Handbook can be found by clicking here.

To review the decision, click here.

While the decision was very narrow in that it only discussed how the lender participates in the program and must evaluate the borrower under the program prior to selling the house at foreclosure, the decision should be interpreted as a sounding horn to all foreclosure defense attorneys to study every word in the Handbook. Now, if a lender (servicer) makes a crazy decision, outside of the rules prescribed by the Federal Government, a borrower's attorney should attack that decision in the NY Courts.

East Hampton Library is Getting Bigger

The East Hampton Village Zoning Board of Appeals was overturned as erroneous, arbitrary and irrational in denying a variance to increase the size of the library. The Supreme Court found that the library was an educational institution entitled to the same deferential treatment in zoning accorded to schools and religious institutions.

The takeaway is that Zoning Boards generally have a hard time restricting a public good. That is why it is always advisable to combine a public good with a zoning application when entering a municipality. Talk in terms that matter to the people who live there. Better schools, more parks, cleaner beaches as a result of the application. Sometimes you just can't do this, but to deny a library's goal of improving was too much for the Court in this matter.

Foreclosures - MERS hit with Fatal Blow

In a well anticipated decision the Appellate Division, Second Department (regulates all of Long Island) has saved many many homes as of June 7, 2011, a date that will be remembered in the real estate world for years to come.

The Court clearly stated as follows:

Issue:

"The issue presented on this appeal is whether a party has standing to commence a foreclosure action when that party's assignor - in this case, Mortgage Electronic Registration Systems, Inc. (hereinafter MERS)-was listed in the underlying mortgage instruments as a nominee and mortgagee for the purpose of recording, but was never the actual holder or assignee of the underlying notes."

Holding:

"We answer this question in the negative."

To read the entire decision, click here.

If one was to look back on the decision in In Re Agard where the Federal Bankruptcy Court held that splitting the note and mortgage was fatal or back to MERS v. Romaine where the dissent questioned the entire mortgage recording system invented by MERS, this decision was a long time coming.

The fact is this - Don't usurp the role of government and than ask government to help a misstep in your practices. MERS needs to play by the same rules as everyone else.

Interestingly, the Court notated that "MERS purportedly holds approximately 60 million mortgage loans" & makes this decision in the face of that.

If you are being foreclosed or know someone who is, you now have a lot more rights to potential keep your home for a long time. This will force many modifications!!!

First Time Homebuyers of Newly Constructed Homes - Tax Break

Gov. Cuomo just extended tax exemptions for first-time homebuyers, which sounds great. The problem is that this only helps purchasers of newly constructed homes, not existing homes. Also, most first-time homebuyers purchase used homes, not new ones. Therefore, it appears that this bill is less about the first-time homebuyers and more about the builders lobby. Make your own decision.

Also, to be clear, this bill does not provide an exemption, but allows local municipalities to offer such an exemption. Suffolk does offer such an exemption, so this may help.

The Justifications of the Bill is as follows:

Home ownership is the most potent form of economic stimulus. When some- one purchases a home, they generate economic a activity in every sector from construction, finishing, furnishing and more. New homeowners purchase appliances, upkeep equipment and tools, plumbing and electrical services, insurance and more.  The purchase of new homes contributes to the community, encouraging the homeowners to take root and participate in public schools and local governments. Encouraging the construction of new homes is critical to attracting businesses, which consider the availability of workforce housing when choosing where to locate.  This legislation would continue a local option to permit municipal enti- ties to adopt a first-time homebuyer program for newly constructed homes. By allowing municipalities to provide a tax incentive for first time homebuyers, New York State sends a message that it is committed to economic recovery.  Counties where municipal entities have adopted first-time homebuyer programs include Albany, Alleghany, Chautauqua, Nassau, Oneida, Orange, Oswego, Rensselaer and Suffolk.

Suffolk's Green Field

The largest solar farm in the Northeast is almost done & more interestingly, its located in Suffolk County!!!

The project, which spans nearly 200 acres, is located at Brookhaven Lab & can power approximately 4,500 homes.

The coolest part of this project is the collaboration between Brookhaven Lab, BP & LIPA where BP gets access to free land, Brookhaven Lab has access to an array of data & LIPA is purchasing the energy. Its win-win-win.

Now one may ask themselves why a real estate school cares about a solar farm. The answer is simple. Green construction is the future and we believe that Brookhaven Lab's research from this project will greatly advance the field. We cannot wait to see the fruits of this research. Best of the luck to the venture.

The Renewable Energy Home

Right in the backyard of my law firm is a fantastic gem of renewable energy, check it out by clicking here.

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

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.

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

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.

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

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.

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.