Ending Second Mortgage Problems

So does this sound like a typical situation. You have a short sale offer on a property that has a first mortgage of $300K and a second mortgage of $100K, but an offer of only $250K. Your issue in getting the short sale approved is with the second mortgage who refuses to release their Notice of Pendency and let the deal close.

So what do you do?

Some beg the second to approve the sale. Some try and get concessions from the lawyer, real estate agents, and first mortgage to appease the second. Yet, this is all begging. I am not into begging.

Here is a situation that works better. Use the Bankruptcy Courts and do what is called a Cram-down or strip-off. This is when the bankruptcy Court removes the secured status that accompanies a mortgage because the property's fair market value does not support the security. Traditionally, in a Chapter 7 Bankruptcy, the Court removes any unsecured debt, but keeps the security interest and permits a debtor to either reinstate the debt and keep the property or allows the creditor to take the property through their security interest. Here, there is no value to secure, so the Bankruptcy Court removes both the debt and the security interest. This is great. Now you can have your short sale approved and thumb your nose at the second mortgage. Maybe if you explain this to the second mortgage (showing your knowledge) and the Bankruptcy Court fees that they will incur in loosing this battle about their mortgage, they will just permit the sale. Just saying.

Be ware - Cram-downs don't work on first mortgages. Moreover, they used to only work in Chapter 13 Bankruptcies. Well there was a case just last year entitled, Lavelle, where a decision permitted Chapter 7 debtors to cram-down their second mortgage just like in a Chapter 13.

Here is to your next short sale approval.

NY Property Tax Cap Bill

There is so much talk about reducing your taxes through a Tax Grievance these days, I figured it appropriate to mention a current Bill proposed by the Governor that caps property taxes. Yet, before I give you the details lets first be clear that a Tax Grievance does not address the amount of property taxes on the macro, but instead how much percentage of the total property taxes in a given area that each individual property owner is assessed on the micro.

Anyway, the currently proposed Bill would limit tax levy growth for all school districts, counties, cities, towns, villages, special districts and fire districts to the lesser of 4% or 120% of the annual increase in the consumer price index. Yet, the Bill would allow local government officials to override the cap with a 2/3s vote. So with this Bill the total amount of taxes felt by every homeowner in a given area would be uniformly capped. Nonetheless, remember that grievance day in Suffolk County Towns is May 18 so get to filling out your grievance forms and reducing your property taxes in the micro. Plus, for all of you who need a little help, Lieb at Law will be co-hosting a workshop on Tax Grievances with the Moriches Chamber of Commerce on April 29 at 7pm at the Center Moriches Library where all are welcome to attend and learn.

I will keep you posted if the Bill is passed.

Small Claims Assessment Review v. Tax Certiorari

There are 2 options available if the property owner wants to appeal the Board of Assessment Review in a Tax Grievance. Each option examines the grievance De Novo (anew) without influence from the Board of Assessment Review and each generally precludes another grievance for 3 years. Yet, the Small Claims Assessment Review (SCAR) is quicker and less expensive; a property owner can be represented by a nonattorney; and the matter is decided by a Hearing Officer who does not require formal rules of court.

Requirements to use SCAR:
1. Must be person aggrieved by an assessment;
2. Assessment must be on a one, two or three family, owner-occupied residential structure;
3. Structure must be used exclusively for residential purposes; and
4. Aggrieved person must have filed grievance

So - income producing property requires a Tax Certiorari. Therefore, owners of income producing property should either use an attorney from the get go of the grievance process or do it themselves instead of using one of those tax grievance companies that send you a letter every other day because the companies can't appeal the Board of Assessment Review's decision. What are your thoughts on tax grievance companies?

Commercial Realty Valuation Question

Generally, when tenants talk about prospective commercial spaces they talk in terms of price per a square foot. This makes sense in that its a small unit of quantification that is easily comparable between locations. Moreover, many prime tenants are either corporately owned or franchises and consequently utilize operational systems that are based upon statistics. Yet, do you think that commercial spaces on Main Street should be discussed in terms of price per square foot or just as a more vague market value? I find on Main Street the latter is often used, but maybe Main Street should follow Wall Street and use the square foot measurement more. It would bring objectivity to the market and optimize the valuations of property.

Tax Grievances Document Requirement

1. Most recent property tax bill
2. Appraisal completed within the last 12 months
3. Contract of Sale (if purchased within the last two years)
4. Recorded Deed


Lets talk appraisal; there are 3 traditional ways to value realty:
1. Market comparison approach estimates the value of property by applying a comparative analysis of recent sales that are similar to the property being assessed in terms of physical and locational characteristics.
2. Cost approach or summation approach estimates the value property by adding the depreciated value of all improvements to the value of the land. The cost approach is most useful to estimate the value of specialty properties for which there is no market.
3. Income approach is used primarily for commercial and industrial properties. The income approach estimates value by capitalizing the income generated by the property after deducting charges for vacancy, collection loss and expenses.

For residential property, the best bet is to get a Broker's Price Opinion ("BPO"), which costs the least and is the most available. In fact, its created by a Broker, not an Appraiser. Just be mindful that a BPO must include at least 3 Comparisons ("Comps") to similarly situated realty.

We will be co-hosting a workshop on grievances ("Do it yourself grievances") with the Moriches Chamber of Commerce at the Center Moriches Public Library on April 29, at 7pm. Please attend to learn more.

More on Security Deposits

I was asked by an attorney in Chicago if there was a penalty to a landlord if they commingle their money with the security deposit of the tenant. In Chicago, I am informed that its 2x the security deposit plus reasonable attorneys fees. Not in NY. Here the tenant only has an immediate strict liability right to recover their security deposit regardless of the status of the lease. Meaning, even if the tenant already breached the lease, if the landlord had commingled the tenant's security deposit, the tenant can recover. Yet, I like Chicago's law better. Do you think we should add teeth to our law and provide for punitive (punishment) damages if landlords commingle the money?

Here is a blurb from a case on point:

General Obligations Law § 7-103(1) provides that a security deposit “shall continue to be the money of the person making such deposit ... and shall be held in trust by the person with whom such deposit ... shall be made and shall not be mingled with the personal moneys or become an asset of the person receiving the same.” While the statute does not provide any specific penalty or sanction for a landlord's commingling of a security deposit with personal funds, it has been held that the commingling of a security deposit with a landlord's personal funds is a conversion, which entitles a tenant to an immediate right of recovery ( see LeRoy v. Sayers, 217 A.D.2d 63 [1995]; Sommers v. Timely Toys, 209 F.2d 342 [1954] ).