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Archive for the ‘Real Estate Law’ Category

Tips for Navigating the Short Sale Process

February 12th, 2008 by Joshua M. Marks, Esq. | 5 Comments | Filed in Real Estate Deals, Real Estate Law, Real Estate Tips

With homeowners defaulting on their mortgages at a record pace, many people are practically begging their lenders for some form of relief or assistance in order to prevent themselves from ending up on the street. While it is certainly disconcerting to receive collection letters and threats of impending foreclosure from a lender, those who are falling deeper into debt and enduring difficulty making their monthly mortgage payments need not despair. The “short sale” is one alternative worth considering as a viable means for resolving your debt with the lender and dealing with a home that is no longer affordable. Here are some basics you need to know before starting the short sale process.

What is a Short Sale?

A “short sale” occurs when the net proceeds from the sale of property is not sufficient to satisfy the outstanding mortgages on the property, and the seller does not have the financial ability to make up the difference. The lender is asked to take less than the full amount owed in order for the sale to be completed

What Causes A Short Sale?

Sometimes a short sale is brought about because the homeowner borrowed more than he/she could afford to pay back and miscalculated his/her financial status. Often, the short sale arises because of an unforeseen change in the homeowner’s life, such as a long-term illness, disability, divorce or loss of employment, which has dramatically affected the person’s income such that the mortgage payments are no longer affordable.

Why is the short sale a viable option for the seller?

A foreclosure can have a devastating impact on someone’s credit report that has a lasting effect for years to come. A short sale is typically reported on a credit report as a debt that is “settled for an amount less than what is due”. While this will cause a dip in credit score, it will be nowhere near as harsh as the reporting of a foreclosure.

Why would a lender agree to a short sale?

The answer is very simple: Lenders do not want to own houses. Lenders are in the business of loaning money, not in the business of stockpiling real estate. There have been numerous reports that banks can face fees of up to $50,000.00-$60,000.00 in actually foreclosing on a property. From a business standpoint, the lender will make out better if the property is put on the market and given an opportunity to attract a buyer through private sale.

How does the short sale process work?

Most lenders have a short sale package containing documents that the seller must submit in order to have the short sale approved. Such documents include: hardship letter from seller/borrower explaining why the short sale is necessary, seller’s financial statement, two most recent pay stubs, two most recent bank statements, two most recent tax returns, copy of an Agreement of Sale with buyer, copy of proposed settlement statement (HUD-1) demonstrating net monies to the lender. Once the package is submitted to the lender, a negotiator is assigned to the file who handles the short sale on behalf of the lender through closing.

Miscellaneous Points to keep in mind

  • If you find a buyer, don’t expect closing to take place quickly. It may take 60 days, 90 days or even longer, depending on the lender, to get approval from the negotiator for the short sale to go forward.
  • Lenders are not properly staffed to handle the number of short sale requests. In order to make sure that your file doesn’t linger on someone’s desk, you need to be persistent—your agent or attorney should make frequent calls to the negotiator in order to insure that your short sale moves forward.
  • You must negotiate for the release of both the property and the underlying personal debt secured by the note. If you fail to do this, the lender may not forgive the personal debt.
  • It is wise to consult with an attorney and real estate agent who has been through this process before and has significant experience working with lenders. Also, attorney’s fees come out of the lender’s net proceeds. Therefore, you will not have to pay out of your own pocket for an attorney to assist you in the transaction.

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A Disgruntled Developer Tries to Get Back Commissions Already Paid to Agents

February 4th, 2008 by Joshua M. Marks, Esq. | 8 Comments | Filed in Real Estate Investing, Real Estate Law

A Miami-Dade County, Florida developer, Related Group, has filed multiple lawsuits in the past month against real estate brokerages seeking the return of commissions on deals that fell through. The amount in controversy, which exceeds $460,000.00, is tied to commissions advanced by Related Group to the named-defendant brokerages on at least 19 sales contracts in the Hallandale Beach Club Tower III project. Related Group is alleging breach of contract in these actions for the brokerages’ failure to return commissions paid on deals that never closed.

Apparently, is it routine practice for Related Group to pay commissions once prospective buyers have given a deposit, rather than waiting until the transaction formally closes. Under Florida law, the commissions are paid to the broker of record, who then pays the agent of record in accordance with the agent and broker’s agreed upon compensation split. The broker registration agreements that Related Group supposedly filed along with the lawsuits state that a commission is to be earned only upon the close of title. At least one of the attorneys involved for a particular defendant has stated to the media that there is no language in the broker registration agreement that states a commission must be refunded if the buyer fails to close. In addition, the defendants have stated that the developer never returned the deposit monies to the buyers who backed out of the deals; therefore, they are questioning the developer for trying to recover commissions for deals in which Related Group kept the deposits. Whether or not this point is relevant and valid as a potential defense is something that will have to be determined in court.

Many of the brokerages involved as defendants are unable to return the commissions, as they were already paid out to individual agents on contracts that were executed several months ago if not more. A number of agents participating in those past deals no longer work for the brokerages, making it even more difficult for the brokerages to try and return the money. Regardless, the collective sentiment of the defendants in these related lawsuits appears to be that the developer is not entitled to a return of the commissions. Further, the defendants are questioning the loyalty and business judgment of the developer, who has reaped millions of dollars over the years from the efforts of the brokerages in successfully closing numerous deals. There is no doubt that these lawsuits will have a chilling effect on brokerages doing business with Related Group in the future. At a minimum, brokerages would be wise in the future to place an advanced commission in escrow until a deal successfully closes, to insure that an agent doesn’t prematurely spend his/her portion.

This case presents an interesting twist on the types of lawsuits that have been filed recently during this volatile residential market. Much of the litigation surrounding residential real estate across the country has centered on foreclosure actions and cases involving buyers who want to void agreements of sale while retaining deposit monies. Whether or not Related Group succeeds in its efforts against these defendants, both developers and agents will have to re-examine their business relationships, and specifically, the practice of advancing commissions.

Real Estate Agents: Are Litigious Clients Out to Get YOU?

January 23rd, 2008 by Charles Feldman | 4 Comments | Filed in Real Estate Law

If you are a real estate agent or lawyer you MUST read this; if you are a recent home buyer you MUST read this.

Why?

Because we are about to take a trip through the looking glass into a weird world never before explored, a world in which home owners who feel they overpaid for their houses are now turning on and suing–as in law suit–their real estate agents or lawyers!

In a front page New York Times article that should send chills down the spins of agents and raise the hopes of buyers who feel like they were had, a Carlsbad, California woman is profiled because she claims she paid way to much for her house…and, she points the finger of blame on the agent who worked the deal for her.

According to the paper, the woman claims “the agent hid information that similar homes in the neighborhood were selling for less because he feared she would back out and he would lose his $30,000 commission.”

The paper quotes real estate lawyers and brokers as saying this is “likely to be the first of many in which regretful or resentful buyers seek redress from the agents who found them a home and arranged its purchase.”

The agent being sued in this historic case told the paper that the woman is simply trying to blame him because she failed to do her own homework before buying the property.

There was a time when agents legally only represented the person selling the house; but in recent years, it has become common for home buyers to utilize brokers and agents.

Says the Times: “That makes this the first housing collapse in which large numbers of buyers had a real estate professional explicitly looking after their interests.”

Considering how dire the current housing market is, and the propensity of Americans to take to the courts to settle just about any dispute, what is unfolding now in a California courtroom has implications that could change the way real estate agents, brokers and lawyers operate in the future.

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5 Reasons Why You Need a Real Estate Attorney

January 21st, 2008 by Joshua M. Marks, Esq. | 7 Comments | Filed in Real Estate Law

True Story: Jim and Susan Jones were selling their home in Florida and relocating to Pennsylvania. They had entered into an agreement of sale with a buyer for their home simultaneous to signing an agreement of sale to buy a new home in Pennsylvania. After packing all of their belongings and getting ready to board a plane for Pennsylvania, the Jones’ found out on the day of closing that the buyer was backing out of the deal to buy their home. Without the proceeds from the sale of their home in Florida, Jim and Susan could not follow through with the purchase of their new home in Pennsylvania–they had to back out of the deal. With no other options, they moved in with Jim’s parents, had to place their furniture in storage for several months and were forced to re-list their property in Florida; not to mention Jim and Susan were not able to buy the Pennsylvania home that they fell in love with.

Buying or selling a home is the SINGLE MOST IMPORTANT business transaction that occurs for many people in their lifetime. Whether you are a buyer or seller, it pays to spend a little extra money to hire a real estate attorney before signing that Agreement of Sale, and here is why:

  1. Your real estate agent is not licensed to advise you on legal issues such as zoning problems, environmental concerns, easements, township ordinances, and other restrictions that may affect the ownership and use of the property.

  2. A real estate attorney can assist you and your realtor in transactions involving boundary disputes, survey issues, estate sales and other factors that may complicate your particular transaction.
  3. A real estate attorney can review all of the loan documents to make sure you understand your obligations, and most importantly, to confirm that the lender did not alter the originally agreed upon interest rate and payment terms.
  4. Problems always arise in new construction purchases! You will have taken great steps toward protecting yourself and your investment by hiring competent legal counsel to guide you throughout the transaction.
  5. Something will happen in the purchase or sale of your home that you will not anticipate! Your real estate attorney can plan for and protect you from unexpected pitfalls that could jeopardize the transaction.

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Issues To Consider When Buying/Selling Multi-Unit Residential Income Property

January 14th, 2008 by Joshua M. Marks, Esq. | 1 Comment | Filed in Landlord Tenant, Real Estate Investing, Real Estate Law

When purchasing a multi-unit residential property, there are additional items that must be addressed at settlement that are not routine in typical residential transactions. For this very reason, it is essential to ask your real estate agent if he/she has significant experience in handling multi-unit properties (I would also strongly suggest that you involve a real estate attorney in these transactions). It is imperative that you create a pre-draft checklist that you bring to settlement in order to be certain that all issues have been resolved at the closing table. Here is a list of just some of the matters that you will have to concern yourself with, whether you are a buyer or seller of multi-unit residential properties:

  1. Assignment of Lease – Typically, an assignment of lease is utilized for a commercial property when a tenant wants to vacate his/her respective lease by assigning the terms to a new tenant. In the residential context, an assignment of lease is needed in order to extinguish the seller/landlord’s interest in the security deposit, pre-paid rent and future rent payments under the lease. Both the buyer and seller benefit from having this document executed–the buyer is assured that he/she will be solely entitled to the future rent payments of the tenants and the seller is freeing himself/herself up of all future responsibilities for maintaining the property under the tenant leases.

  2. Pro-Rated Rent/Transfer of Security Deposit - The buyer is entitled to pro-rated rent from the date of settlement through the end of that particular month as the new owner/landlord of the property. If the settlement takes place on January 14th, then the buyer is entitled to a pro-rated share of the rent through January 31st (assuming the January rent payment was due on January 1st). It is also necessary that the tenants’ security deposits being held in escrow by the seller along with last month’s rent, if any, are transferred to the buyer at closing. The buyer will now be responsible for opening up a new bank account to hold the security deposit and other monies. If the lender gives prior approval, it is possible that the pro-rated rent and security deposits may be reflected on the settlement statement and transferred to buyer from the seller’s proceeds on the sale. If the lender will not allow for the monies to be handled in this manner, then the seller can issue separate checks “outside of closing” to buyer for the amount required.

  3. Notice To Tenants - Prior to settlement, a buyer should review all tenant leases that are going to be assigned to him/her upon settlement; check to see if there are any required notices to the tenants or other actions that must be taken by either seller or buyer with respect to the tenants upon sale of the property. For example, most leases require the seller to provide notice to all tenants that their security deposits have been transferred to the buyer and must provide an address of where future rent payments are to be sent. Buyers should also determine when the tenants’ leases expire and if there are automatic renewal terms built into the lease.

  4. Real Estate Transfer Tax- Multi-unit properties are generally purchased for investment purposes. However, I have often seen instances where a buyer will rush into an Agreement of Sale before setting up a business entity (such as an LLC or corporation) and obtain title of a new property as an individual. After the fact, the buyer decides that he/she wants to transfer the property to an LLC or S-corp. Most states will require an individual to pay real estate transfer tax upon transferring a property to an entity owned by that individual. Therefore, the person ends up paying the transfer tax once at settlement and AGAIN when the property is transferred to the LLC or S-Corp!! Before you make that extremely costly mistake, make sure you decide prior to closing whether or not you intend to hold title in your name or in the name of an entity that is legally formed before settlement.

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Landlords: The Importance of Investigating Outstanding Violations

January 9th, 2008 by Joshua M. Marks, Esq. | 1 Comment | Filed in Landlord Tenant, Real Estate Law

In many municipalities, a Certificate of Occupancy (often referred to as the “CO”) must be obtained by the seller and delivered to the buyer prior to or at closing. This insures that the buyer is aware of any outstanding violations or pending assessments against the property. However, some towns do not require a CO. If you are purchasing a property in such a town, beware!! If your agent fails to be proactive and inquire about outstanding violations or assessments, you could be stuck with some very large bills.

I currently represent a buyer who purchased a $30,000.00 vacant lot. Sometime after settlement, he received four bills from the city for demolition work performed on a deteriorating building, which was located on the property, while the property was under the seller’s ownership. Although the demolition work was completed several months before settlement, the city’s bills were forwarded after settlement, and subsequently attached as liens to the property. The city is now looking to my client to satisfy those liens. Unfortunately, when my client first looked at the property, all he saw was a vacant lot. He was not even aware, and the seller failed to disclose, that there was a structure on the property at one time that was demolished by the city.

How could this problem have been avoided? If my client’s agent had performed a minimal amount of investigation, by contacting the city violations/assessments office, it would have become evident that this property had pending bills for work to correct the seller’s outstanding violations. My client could have then made an informed decision whether or not to purchase the property. Unfortunately, the city only cares about who is the record owner once the bills are due and the liens attach. Now, the seller’s violations have become my client’s headache. Instead of a seemingly quality investment, he has purchased a property worth $30,000.00 that has $20,000.00 in liens.

You may be asking about whether my client has a valid claim under his title insurance policy. Most title policies exclude coverage for liens and encumbrances that are created or attach after settlement. Even though the demo work was performed prior to settlement, the liens did not attach until after settlement. Therefore, the title company has disclaimed any coverage in this matter. Further, the title company typically is not responsible for any liens or other blemishes on title that are not of public record. Unfortunately, pending violations against a property do not show up in a title search, as they do not affect title until they become liens. Therefore, the title company would not have discovered the city’s outstanding bills in conducting a title search prior to settlement—another reason why the title company refuses to extend coverage to my client for this horrible mess.

Now, my client’s only remedy is to pursue expensive and time-consuming litigation against the seller, my client’s agent, and the title agent.

All of this could have been avoided with a minimal level of effort and competence. So, the next time you intend to purchase a property in a town that doesn’t require a CO, don’t rely on your agent—make sure you contact the appropriate city department to inquire whether there are any violations, fines or outstanding bills that could potentially become your responsibility once you take title.

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On the Fence with Landlording? A Rental with Bite!

December 27th, 2007 by Jim Watkins | 10 Comments | Filed in Landlord Tenant, Real Estate Law

When it comes to owning and managing a rental property, I don’t care to spend money for things that are not needed. So a few years ago, when a tenant of mine asked if I would pay to have a fence installed for the back yard, I asked, “Why?”

The tenant wanted to get a puppy and hoped that I would pay for it. I thought they were joking at first but, they were serious and wanted me to enclose the back yard. I mulled it over in my head for a few seconds and came to this conclusion…

Are they nuts? They want me to pay $750 to $1,000 for a new fence… So they can get a dog? No way!

Putting in a fence would have been a losing prospect for me. The neighbors would hate me when the tenant put the dog in the yard, only to have it bark all night long. I would not pay for a fence so they could keep a dog in the yard.

Several months later, I met an investor who had over 100 rental properties. I mentioned the request that my tenant had made and that I didn’t pay for a new fence. The investor suddenly became very interested and told me that it would have been the best money I ever spent.
I asked him how it would have been a good move to have granted the request.

He went on to tell me how he had faced a law suit early in his investing career. He had a rent house that did not have a fenced in yard. His tenants did not have a dog or any other animals but, they did have two kids.

One day one of his renters’ kids was in the back yard, where several neighborhood kids had gathered to play. Right about that time, a stray Pit Bull had wandered into the yard and attacked one of the young kids. Thankfully, the attack didn’t last long and the boy ended up only needing a few stitches.

Test Question: Who got sued?

It was not his tenants’ kid who was attacked and the dog did not belong to his tenant.

You guessed it… HE was sued! It was his property where the dog attacked a neighborhood kid and the parents sued him for $75,000. He told me that it was settled out of court for $20,000.

I asked what his insurance covered and he told me that they paid for all the legal fees and the $20,000 settlement. I remember saying to him, “Well that’s not all bad. At least you didn’t have to come out of your own pocket.” He shook his head and said, “The hell I didn’t!”

He said that his insurance rates went up about $2,000 for each of the next seven years. In the end, he figured he ended up paying over $14,000 because a stray Pit Bull had bitten someone on his property. His tenants broke their lease two months later and he had to pay the holding costs for the five months it took to replace them. That was the first and only time I had ever met a fellow investor that had actually been sued because of an animal attack and was able to tell me how expensive it was.

The next day I called the tenant that had asked me to install a fence. I told them to expect a fence to be installed within a week.
I determined that I was looking at the situation all wrong.

I had reasoned that I wouldn’t pay $750 to $1,000 to keep my tenants’ dog IN the yard.
Instead, I ended up spending about $800 to keep everyone else’s dog OUT!
The investor was right… It was the best money I have ever spent.

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