Robosigning Settlements

Settlement negotiations are in place with the nation’s five (5) largest mortgage servicers to compensate victims of Robosigners. These lenders include Ally Financial, Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo.

Robosigners are lender representatives that signed several thousand documents without reading and reviewing them for accuracy, creating issues in foreclosure litigation as a result. This practice came to light as a result of the 2008 financial crisis because the number of foreclosures increased greatly as a result.

On the Upside: A portion of the estimated $25 billion settlement will be used to assist homeowners facing foreclosure in participating states. Compensation may also be available to homeowners that fell victim to Robosigning practices. The lenders would also be required to participate in an upgraded procedure for processing foreclosures in order to provide homeowners with greater protection.

On the Downside: After a final settlement, the participating lenders would be protected from future litigation by the participating states. This raises concern to several state Attorney Generals, such as in California and New York’s Eric Schneiderman.

Opponents to the agreement argue that although the number seems large, these lenders are “getting off too easy”.

This opposition is also fueled in part by the concern that there may be other, undiscovered predatory, deceptive, and/or illegal practices in place with these lenders that warrant further investigation and potentially prosecution. Since protection for the participating lenders is part of the package, this may prevent investigation, prosecution, and protection concerning such ongoing practices.

Likewise, President Obama announced that he anticipates creating a task force which will further investigate lenders’ wrongdoing. If such a task force is created prior to the execution of the settlement agreement, this could result in a failure of the settlement. The lenders are bargaining for protection from further litigation and may not be willing to pay such sums without that promise.

Further, compensation to the victims of foreclosure is limited to a small class of persons damaged within a restricted date range. Homeowners with Freddie Mac or Fannie Mae loans will be exempt.

To learn more about this potential agreement, CLICK HERE or CLICK HERE.

NY Attorney General Sues Banks Over MERS

Following on the heals of the Silverberg decision by the Appellate Division, which basically denied lenders the standing to sue when MERS was utilized to record a mortgage, the NY AG has sued the banks for their use of MERS. If you remember Ed Romaines lawsuit with MERS, this has been a long time coming. The lawsuit alleges deceptive and fradulent practices on homeowners and the Courts as a result of MERS involvement in mortgages. Basically MERS involvement skews the ability of the Courts and Defendants in a foreclosure action to determine if the Plaintiff in the lawsuit actually has the right to sue. To learn more about the lawsuit, click here.

Making Home Affordable Program Extended Another Year

This week the administration announced that its program that provides the framework for mortgage services to provide modifications to distressed homeowners will be extended for an additional year and will now be available through December 31, 2013.

Additionally, the administration will modify the framework of the Making Home Affordable program to offer assistance to an increased target population of homeowners. To accomplish this goal, the Home Affordability Modification Program (HAMP) will shift its sole focus on front-end debt-to-income ratio, or the comparison of income to a homeowner's mortgages, taxes and insurance, to also evaluating back-end debt-to-income ratios, or the comparison of income to a homeowner's total debt, including non-real estate related debt. Its interesting that it took the administration so long to shift to this focus because back-end debt-to-income has traditionally been the primary focus of lenders when making a loan. Still further, the program will be extended to income-producing properties, with tenants, as well as vacant properties instead of being limited to owner occupied properties as it currently exists. Lastly, the administration has expanded its incentive offerings to services who offer principal reduction to underwater homeowners.

To read the administration's explanation of its new policies with respect to the Making Home Affordable Program, click here.

New York State Bar Association - Annual Meeting - Real Property

Hi all,

I just got back from the Real Property Meetings in New York City and wanted to report on the great experience had by all. We discussed why New York Real Estate is different, Current real estate development issues, Rebuilding the World Trade Center, Current real estate financing issues, Current real estate leasing issues, Residential mortgages, Real estate issues facing not-for-profits, and NYC skyscrapers. The meeting was very positive and their was an air that the market is improving in NY. Also, I learned that the foreclosure woes are estimated to be 1/2 done in NY where they are only 1/3 through the crisis in the rest of the Country.

Personally, the discussion about the stages of building up the World Trade Center's buildings to achieve market rentals as opposed to building them all at the same time when they would compete for tenants and the discussion about the German influence on NYC's skyline were the most interesting aspects of the meetings.

Yet, I would say that Suffolk County's real estate issues were not addressed and the focus was on NYC. Therefore, I wrote the Chair of the Committee asking how we can get more localized into the future. Hopefully, we can learn from other counties and share with them the lessons we learn from having the best residential community in the State, the Hamptons / North Fork.

Case of Interest - Douglas Elliman v. Tretter - Agency Disclosure

Summary: Appellate Division, 1st Department Case, discussing whether the absence of an agency disclosure from precludes a real estate agent from receiving her commission. The issue was side-stepped by the Court, which holds that a dual agency relationship didn't exist so we are left to speculate whether a commission could be earned if such a relationship had existed.

Advice: Get your agency disclosure forms signed on the first point of substantive contact because the question remains open whether you can collect a commission if you fail to get the disclosure completed. Additionally, its required by real estate license law to get an agency disclosure form completed; so to keep your license in good standing, you must get this done.

---

Case Analysis:

Issue: Did real estate agent act as a dual agent and consequently was she required to disclose her divided loyalties and obtain the sellers' consent thereto on an agency disclosure form?

Claim: Real estate brokerage sought $70K brokerage commission.

Facts: Tretters, Mr. Tretter being an attorney, retained Douglas Elliman to sell their cooperative apartment. Douglas Elliman's agent, Lockwood, met prospective purchaser Zeitzer at an open house and showed approximately 5 other apartments to Zeitzer, her "customers". Zeitzer contracted to purchase Tretter's property. Contract price was $1.4 million with a 5% commission to the brokerage company. Sellers were solely responsible for the brokerage commission pursuant to the contract.

Finding of Fact: Lockwood did not act as a dual agent. While she had a signed exclusive agency agreement with the Tretters, she did not with the purchasers and she received no monies from them.

Dissent: There is an issue of fact whether Lockwood was a dual agent because Lockwood acknowledged in depositions that the was the "buyers' agent" among other facts such as their attorney referring to her as a dual agent.

As the Department of State says: Be Wary of Dual Agency

Thanks to our students for a great CLE in Bridgehampton last evening

I had a great time presenting our CLE Course: Property Wars last evening and wanted to thank all those who attended for being a great audience.

Cooperatives Apartments Be Careful

2 recent decisions speak to the duties Boards have in Cooperative apartments.

Fair Housing Act: Not only can a Cooperative violate the Fair Housing Act regardless of the Business Judgment Rule, but specifically you can't keep the single guys out so says the Federal District Court in Lax v. 29 Woodmere Blvd. Owners, Inc. While the Court did not yet decide for the Plaintiff, the Court did say that the allegations if proven can constitute a cause of action.

Price Floors: While there appears to be a trend that Cooperatives can set floors that apartments cannot be sold under based upon the Business Judgment Rule, be careful that the floor is reasonable (whatever that means) and that the Board has authority to set such a floor in the Cooperatives governing documents.

To be clear, the Business Judgment Rule says that Corporate Officers are not liable for their decisions and actions when they are made under authority and in a good faith furtherance of Corporate purposes.

Top 11 Real Estate Laws of 2011

Now that 2012 is here it is important to be aware of changes in the law in order to properly represent our clients. This is not a list about the best events from 2011, but, instead, a list that highlights the new legal landscape that you face as real estate practitioners. Being familiar with these laws, regulations and opinions may help you to better address your clients’ matters, save your license and make you money.

Property Tax Caps
Local government is now prohibited from raising property tax levies by more than the lesser of 2% or the rate of inflation (excluding New York City). An exception to this cap occurs if local government enacts a law or resolution explicitly overriding the cap by a 2/3rds vote. Currently, New York property taxes are the 2nd highest in the country and are 96% higher than the national median.

Marriage Equality
Same-sex couples may now marry and as an incident thereto may now be deeded title as tenants by the entirety. Yet, while New York now provides same-sex couples with many new rights, the practitioner must be mindful that the Defense of Marriage Act prevents same-sex married couples from realizing the full extent of rights enjoyed by opposite-sex married couples because it prohibits the availability of federally recognized rights.

Mortgage Modifications
Mortgagees / servicers who participate in the federal Home Affordability Modification Program (HAMP) and accept a borrower’s application for a loan modification under that program must fully abide by the rules of the program in New York. Specifically, the Appellate Division held in Aames Funding Corp. v. Houston that a foreclosure sale would be stayed until the borrower was fully evaluated under the HAMP program. Practitioners should therefore familiarize themselves with all HAMP rules, which can be learned by accessing the Making Home Affordable Handbook.

Electronic Recording
Real estate recordings are going digital. County clerks will begin accepting documents in electronic format on September 22, 2012. Don’t fret; you can still bring the Clerk your paper versions if you please. Yet, the justification for the bill argues that “owners of real property, real estate professionals and local government taxpayers would benefit from the more accurate and efficient land records system that this bill would facilitate” so you should consider the upside of going digital.

MERS’ Foreclosure Obstacle
Where Mortgage Electronic Registration Systems, Inc. (MERS) is nominee and mortgagee for purposes of recording, it cannot assign the right to foreclose upon a mortgage to a plaintiff in a foreclosure action absent MERS's right to, or possession of, the actual underlying promissory note. So says the Appellate Division in Bank of New York v. Silverberg where a foreclosure was dismissed for lack of standing as a result of MERS’ involvement. The decision coupled with the introduction of governmental electronic recording seems to signal the end of mortgagees’ practice of outsourcing their recordings to MERS in New York.

Ethical Seller’s Concession Rules Reinforced
The New York State Bar Association is at it again by clarifying its Opinion #817 which addressed the duty to disclose in a transaction involving a Seller’s Concession and a corresponding Gross-Up. Opinion #822 states that “all transaction documents containing the grossed-up sales price must disclose that the sales price has been increased by a sum equal to the seller’s concession” in order for the practitioner to comply with Ethics Rule 8.4(c).

Expanded Hardship Criteria for Real Property Redemptions
The Suffolk County Code has been amended to expand the definition of “immediate family” to include grandchildren residing with the applicant where an applicant seeks to enlarge its time period to redeem its tax foreclosed property past 6 months based upon an illness to a member of its “immediate family”.

Elimination of Recommended Attorney Lists by Title Agencies
In analyzing Insurance Law §6409(d), the New York State Insurance Department opinioned that a residential real estate broker may not refer its clients to attorneys on an “approved” or “recommended” list if the attorneys, in turn, refer those clients to the broker’s affiliate title agent. Yet, the opinion clearly states that it is premised upon the assumption that “attorneys that do not make the referral quota are removed from the list”, so a list is likely permissible so long as membership within the list is objectively independent from referral. Nonetheless, affiliated real estate brokerage and title companies are now eliminating their use of these recommended attorney lists.

On-Bill Recovery Loan Program
As part of the Power NY Act of 2011 and beginning January 30, 2012 homeowners can take out low-interest loans from NYSERDA for energy efficiency measures, to be paid back on their utility bills. Moreover, the payments may be tax deductible and are transferable if the property is sold. A great aspect of this program is that homeowners can watch their savings offset the cost of their energy efficiency measures on the very same bill.

Home Improvement Contractors can’t act on Behalf of Mortgage Brokers
Unnecessary repairs are thwarted as home improvement contractors and their agents are prohibited from promoting or arranging for the services of a mortgage broker or its affiliate. Also, referral fees are strictly prohibited under this legislation as are contractors acting as co-signers or guarantors of a loan for home improvements.

Private Transfer Fees are Eliminated
In furthering the public policy of the marketability of real property, new legislation prohibits private transfer fee obligations from running with title to property or otherwise binding subsequent owners of property. Also, the legislation provides a procedure to remedy existing obligations. Private transfer fees have traditionally been utilized as a creative means for developers to realize an income stream long after the finalizing of their projects.

This list only provides a small blurb on each new law, regulation and opinion. There may be further discussion on these topics going forward as they get fleshed out in the Courts. So stay tuned.

Merry Christmas & Happy Hanukkah to the 112,761 licensed real estate agents in NYS

Sources for statistic:
http://www.labor.ny.gov/stats/olcny/real-estate-salesperson.shtm
http://www.labor.ny.gov/stats/olcny/real-estate-broker.shtm

Currently there are 57,599 real estate salespersons in NY & 55,162 real estate brokers.

Fannie / Freddie Ex-Execs Charged

Six former execs, including two former CEOs, were recently charged by the SEC with misleading investors about sub prime loans. In essence, the suit charges that the group greatly underestimated the amount of sub prime loans it had on its books in 2007.

Yet, to be clear, this is not about misleading borrowers, but instead investors. So, all those homeowners out there cannot point to these charges as justice for their personal foreclosures. Instead, this suit is about selling the loans on the secondary market to investors who believed those homeowners / mortgagors / borrowers were more credit worthy than they actually were in the macro.

Its likely that this is not the end of these types of suits and no criminal charges have yet been filed.

Expedited Permits for Solar Panels in Brookhaven

Recently, the Town of Brookhaven Town Code was amended to allow for the adoption of the Residential Solar Energy System Fast Track Permit Application Process. This will allow residents installing electric or hot water solar energy systems to use the universal forms which allow for an expedited permit application process. As a result, residents taking advantage of these amendments will benefit from a faster process, less paperwork, reduced expenses, and expedited approval from the Town.

To learn more:

Click here for the meeting minutes.

Specifically, Chapter 85 of the Code of the Town of Brookhaven, “Zoning” and Chapter 29 of the Code “Fees” were amended. Click here to view the amended changes.

Click here to review the press release.

Click here to access the Town of Brookhaven Forms.

Fannie Mae Eviction Moratorium - Happy Holidays

From December 19th, 2011 to January 2nd, 2012 you won't be evicted if you have been foreclosed upon in a Fannie Mae loan. The mortgage empire has spoken and you can read its words by clicking here. To be clear, this will not stop judicial eviction proceedings, just the actual act of eviction.

A good PR move by the mortgage empire, but not much substantively there. Yet, if you are facing eviction, Santa coming down the chimney one more time would be good for the kids.

Tax Foreclosure Hardship Exemptions Broadened

The Suffolk County Legislature has approved a law amending the allowable tax foreclosure hardship exemptions within the county. The additional exemption is for those grandparents providing monetary support for a grandchild currently residing with them in the household affected by the tax sale.

Context is needed to provide more of a background of what this actually means, and how it impacts the local community. Pursuant to the Suffolk County Tax Act, the county is “authorized to take real property for unpaid taxes”, though the homeowner has a chance to keep his or her home through a redemption process. If the property is not redeemed within a six month window after the county tax deed is recorded, a homeowner’s only recourse is to apply for a hardship exemption extending that window.

Before this new law was passed, only an illness to the applicant, the applicant’s spouse, parent, or child (including one that is adopted) was an acceptable hardship. By adding grandchildren to this list, the legislature has shown both a surprising awareness of its community’s changing familial structure, as well as the ability to efficiently address and correct an issue with current statute.

Current economics dictate that more and more families need to help each other out, generally resulting in the family unit containing multiple generations under one roof. Grandparents let their children move back into the family home, this time bringing along grandchildren in the process. Other times, a parent may not be in the picture at all. The grandparent then becomes the de facto parent, but does not qualify for the same exemption a biological parent would under the old law.

While it should be noted that only new applications for hardship under the law include the provision for grandparents, the Suffolk County Legislature made a simple and logical change to an existing law that stands to benefit many in the community.

HEAP - Energy grants to get the heat on

As its starting to get cold outside, Suffolk residents should be mindful of the Home Energy Assistance Program. This program offers financial assistance to help pay energy bills. Notate, this is not a loan, but assistance, so if you are in need permanently or on an emergency basis, check out this program by clicking here.

Qualification for the program is based upon your monthly income with reference to the number of household occupants. So first check out your paycheck and than see if you qualify.

Also, you can qualify regardless if your energy bill is in your name or part of your rent. Don't be ashamed if you need help, instead get the heat on because with a good night's rest you will be more productive and perform better at work. Thereafter, you can help someone else in need in the future.

Gov's CFPB offers centralized reporting for mortgage complaints

If you weren't aware, the Fed Gov launched the Consumer Financial Protection Bureau this year and its starting to take names. Beyond a positive attempt to reframe the HUD-1, which all NY real estate professionals should take an interest in, the CFPB just launched a mortgage complaint hotline and web portal. Go check out the website at http://www.consumerfinance.gov/ to learn more.

While its still unclear what the extent of involvement in mortgage problems the CFPB will have, at the least, this new project provides a centralized place to submit complaints under the scary auspices of the government. Additionally, it is hoped that this new project will bring more attention to what has been this generation's epidemic, the housing bubble bursting. Maybe this project can help to light a fire under loan servicers to throw out their fax shredders and actually acknowledge receipt of workout documents and requests for information instead of blankedly claiming that the borrower has failed to comply.

Upcoming Free CLE - Property Wars: Real Estate Issues Incident to Divorce

The Long Island Education Board is excited to offer a brand new Free CLE course entitled Property Wars: Real Estate Issues Incident to Divorce.

Thanks to our event sponsor - PDE Title Services, LLC, this course will be offered on the following dates:

• 1/11/12 - Bridgehampton
• 2/29/12 - Manhattan
• 3/28/12 - Melville 

Registration for this free Continuing Legal Education course in Bridgehampton on Long Island is now available. Click here to register. 

Property Wars: Real Estate Issues Incident to Divorce

While every divorce isn't the War of the Roses, no one likes to part with their home or commercial property and very often they are motivated to fight for what they believe to be theirs. In fact, many times divorcing parties will shop lawyers until they hear what they want to hear. Yet, this isn't limited to divorce lawyers. Often, the parties will seek real estate attorneys to move their property around before, during or after a divorce in order to circumvent the law. In the alternative, many divorces are settled amicably where a real estate transaction remains necessary incident to the divorce.

This 2 credit CLE course is designed to educate practitioners about the overlap between these 2 differing fields of law: matrimonial and real estate. In each field attorneys are often called upon to engage incident to the other. Following your attendance you will gain insight into both fields and become more familiarized with the statutes, cases and rules in the one that you don't typically engage. After all, clients like the Roses will go all the way to the end. You need to learn how to get out of the way of the falling chandelier. Credits: 2*

*Application for accreditation of this course or program in New York is currently pending*

Mortgage Delinquencies to Rise & Fall in 2012

According to TransUnion, click here, borrowers who are 60 or more days past due on their mortgages will decline from approximately 6% of all borrowers at the end of 2011 to 5% by the end of 2012.

This is fantastic news and shows that we are slowly emerging from the ever present effects recession.

Lets hope that this is a precursor to increased home sales. With less people talking foreclosure, consumer confidence should raise and people will feel safer making the large purchase of a new home. Here comes a better tomorrow.

Tax Cap on STAR savings

NYS Government is capping the increases in savings experienced by School Tax Relief Program (STAR) and Enhanced STAR recipients at 2%. Therefore, during 2012, recipients will still save more than last year, but less than they otherwise would have saved. It appears to be a compromise by legislators in a troubled economy where tax dollars are necessary to found governmental programs. To learn more about this cap, click here.

To learn more about the STAR program overall and legislation concerning this topic, click here.

Savings is better than spending and in this economy any increases in savings is a good thing.

Lease Renewal Notice Provision not to be Strictly Construed

In a recent controversial case in Manhattan, 135 East 57th street v. Daffy's Inc., the Appellate Division ruled that a tenant's failure to provide their landlord with a timely notice that they wished to renew their lease did not foreclose the tenant's ability to renew nonetheless in the face of the landlord's desire to evict.

The Court ruled that regardless of the terms in a lease, equity or fairness could trump the parties agreement. Specifically, the Court stated a test for the tenant to exercise the option even where it failed to notice the landlord pursuant to the terms of the lease. The test is: (1) The landlord was not prejudiced by the delay in notice; (2) The delay was excusable; and (3) The tenant created value (which can only be for the tenant's behalf) in the premises or had made improvements to the premises

This is a scary decision for landlords who rely on the terms of their agreements to make proper business decisions. In the wake of this decision, landlords should assume that a tenant's failure to renew by notice is not grounds to evict. Instead, the landlord must now go the extra step of getting confirmation that the tenant wishes to vacate in order to have a reliable working premises for their property. Basically, the Court puts the burden on the landlord for determining the tenant's intent to not renew regardless of the agreement of the parties. While its always been a residential tenant's world, it appears that the commercial tenant is not falling far behind in default rules in its favor. Landlords beware.

A Teaching Law Firm - Pace and the Long Island Education Board

For the past 4 years, Lieb at Law, P.C. has continuously pushed the advantages of a teaching law firm, where attorneys are teaching at a New York State Licensed Real Estate School as they develop their careers. The belief has always been that teaching is the best way to learn and it forces attorney educators to know exactly what is happening on the cutting edge of our field. The model isn't original, but instead it is a replica of the medical model.

It seems law schools are catching on as Pace Law School has just launched a "Legal Residency Program" for entry level attorneys.

While the Pace Law School program is geared towards training new attorneys while they provide low cost legal services to the public, as their public statements represent, the Long Island Education Board, a division of Lieb at Law, P.C., is focused on Lieb at Law, P.C. attorneys becoming teachers themselves to achieve the highest level of client services. Therefore, two different aspects of the medical model are being replicated. Its theorized that a combination of the both; whats done in medical school, will be what ultimately results in the best results.

Congrats to Pace and their innovative approach. Your friends at the Long Island Education Board support this endeavor and will monitor your success. Best of luck.

The Empire has Fallen - Baum to Close

In a remarkable piece of news, foreclosure powerhouse, Steven J. Baum P.C. is closing. They have had a tough month first with their photographs mocking homelessness at their Halloween party to being kicked out of the Fannie / Freddie inner circle. Yet, this is a striking day in the history of the foreclosure crisis. Even the king of foreclosure is now homeless, Steven J. Baum P.C. is no more.

To read a NY Times Article, click here.

New York Supreme Court rules Court can continue to sell case information

The New York City Housing Court (“NYCHC”) maintains a database of every matter that passes through its court. “Okay…so what’s the problem with that?” you may ask. Well, a Landlord may obtain this information for a fee from one of the various organizations who purchase this information from the Court. This practice may result in prospective tenants being rejected and/or blacklisted for a housing application due to the Landlord’s perception that the prospective tenant is a “problem tenant” due to the tenant’s name surfacing in a search. However, an attorney has challenged this operation as it paints an incomplete and unfair picture with respect to prospective tenants.

For example, the information obtained does not include a tenant’s reasons behind filing or their ultimate disposition of the case. Meaning, even if the tenants were “in the right” for bringing and/or defending an action, the Landlord is not privy to this information. Instead, the Landlord merely ascertains that the prospective tenant has been a party (it does not even specify whether the tenant brought the action or is defending it) to a NYCHC action and may subsequently unfairly dismiss this tenant as problematic.

As of yesterday, the tenant in Whelan v. Lippman lost the bid to bar the Court System from selling this potentially harmful information to third-party companies by denying the tenant’s motion for a preliminary injunction. The underlying case concerning the “blacklisting” of tenants, however, was not dismissed. We will continue to monitor both the underlying case and any potential appeal of the related case. In the interim, be wary that your potential Landlord may utilize these services when reviewing your application.

Nassau DA faces eviction from Co-Op

The Nassau District Attorney is being evicted from her Co-Op for violating the Co-Op's house rules.

Apparently the Co-Op adopted a new house rule that requires "no new pet without prior approval policy". Well, the District Attorney got a new pet without prior approval. Yet, she thinks she should be able to keep the pet.

The District Attorney appears to be fighting the eviction by saying she only bought the Co-Op because it permitted pets, she wasn't properly notified about the new policy and that by allowing other inhabitants who had a pet prior to the policy to be grandfathered in without prior approval, the rule is improper.

Yet, the District Attorney should realize that when you purchase a Co-Op, you purchase an apartment subject to ever changing rules. If you don't like rules, get a house. While Co-Ops offer ease of living, it does not afford autonomy or privacy. Instead, its communal living with community rules.

Can an advertisement describe the property's walkability?

At a recent course entitled "To be Green or not to be Green, that is the question...", an agent suggested that discussing walkability in a listing was a violation of the Fair Housing Act because it discriminates based upon disability.

While I did not believe this to be true as the term walkability is utilized in common parlance to discuss distance, I acknowledged its potential to offend and thereafter decided to check the Department of State's Administrative Hearing Decisions for such a licensing decision. Thereafter, I checked Westlaw for case law decisions on the topic. After an exhaustive search, I found nothing. Does this mean someone can't claim a violation? No. It just means no violation has been recorded concerning the term walkability in an advertisement for property.

As we always teach, opinions are not really relevant, only facts, laws, and prior decisions should dictate our behavior. Therefore, real estate agents are always directed to check prior licensing decisions by clicking here if they have a question about the propriety of their proposed actions.

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.

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.

Free Foreclosure Seminar - Suffolk Bar

Yes, tenants must pay rent during foreclosure

While case law was established over a year ago, we consistently get

The Question: If I am in foreclosure, how can I make my tenants pay their rent?

The Answer: Bring a summary proceeding pursuant to RPAPL Article 7.

Yet, if a receiver is appointed in a foreclosure action, the receiver & not the owner should bring the action.

In General Elec. Capital Corp. v. Loretto-Utica Residential Health Care Facility, the Court held that landlord's default does not relieve tenants responsibility to pay rents.

It should be noted that some Counties, like Suffolk, require the landlord to provide notice to the tenants if they are in foreclosure. Yet, this has nothing to do with the requirement to pay rent.

Real Estate Conveyances Now Digitally Recorded, or at least soon...

On September 23, 2011, the Governor signed a new law affecting the recording of real property conveyances.

Pursuant to the law, a digital or electronic record should be accepted by the recording office as originals, including a digital copy of a notarization.

This is a great law and should be viewed as a sign that government is becoming more efficient and effective. As records become completely electronic, transaction and storage costs will be reduced while access and organization will be enhanced. Hopefully, this law is a trend and only the start to government embracing technology. Next up, lets get Court conferences by web to reduce unnecessary costs on clients for attorneys to wait 3 hours for a 5 minute scheduling meeting. The technology is there, lets start to use it.

Interestingly, the law doesn't apply to leases for a term of 3 years or less, Wills, and Powers to Convey.

WARNING - This new law doesn't take effect until 365 days after its enactment and it requires regulations prior to its use.

Right to always Assign or Sublet a Lease

At last night's class, Long Island Landlord, a real estate agent inquired whether a landlord could draft a lease to a single family residence, which flat out precluded assignments or sublets. While indicating that a landlord may not, I could not recall the statute or the wording, which was the foundation for this rule and therefore agreed to provide it on the blog today.

Real Property Law §226-b(1) states: Unless a greater right to assign is conferred by the lease, a tenant renting a residence may not assign his lease without the written consent of the owner, which consent may be unconditionally withheld without cause provided that the owner shall release the tenant from the lease upon request of the tenant upon thirty days notice if the owner unreasonably withholds consent which release shall be the sole remedy of the tenant. If the owner reasonably withholds consent, there shall be no assignment and the tenant shall not be released from the lease.

Therefore, a landlord cannot fully prevent a tenant from a right to assign or sublease by unconditionally withholding consent unless the landlord is willing to release the tenant from the lease (in a 4 or more residential unit apartment, a landlord can never unreasonably withhold consent). A landlord should be mindful that releasing the tenant from the lease would result in the tenant being free and clear of all responsibilities, but allowing the assignment or sublease would result in the tenant plus an additional tenant being liable to the landlord, unless there is a novation accompanying the assignment or sublease, which is not required. Therefore, it would seem that except in special circumstances a landlord should only object to an assignment or sublease if they have good cause.

Real Property Law §226-b(6) states: Any provision of a lease or rental agreement purporting to waive a provision of this section is null and void.

Therefore, you cannot draft around this provision. Yet, there are certain properties the statue does not apply to such as a rent stabilized apartments. To be clear, the statute does apply to single-family residences.

WARNING - Read the statute prior to relying on this blog to be sure its applicable to your specific situation and to comply with its notice requirements.

HUD's RESPA Settlement Agreements

We are often asked at the Long Island Education Board how we know HUD's position with respect to potential RESPA violations. We know from reading their previous settlements & decisions.

Here is a great link to see how HUD has previously settled RESPA issues. Learning from the past is a great way to enhance the future. Click here to see the settlements.