Someone once said to be careful of what you wish for as you may just get it. The voices clamoring for court help with foreclosures are getting their day in the sun in New York at least according to an article that appeared in the June 19th New York Times.

If you read the article, pay attention to the “voluntary” part and how it is phrased. I think the ground work has just been put in place to make it a mandatory program, at least in New York. I also think this program has the potential to change how trust deeds are foreclosed against. If I am right, the entire foreclosure arena as we know it will change dramatically.

By change dramatically, I mean it will spread throughout the United States and be mandatory in all 50 states. It will also be mandatory that every foreclosure pass through the local courthouse on its way to a settlement of one kind or another. It could mean short sales may be a thing of the past.

Before I go off the deep end and list a string of predictions, I’ll stop and ask anyone who reads the article to add their 0.02¢ to this thread. I believe New York has let a train out of the station that can’t be stopped. But that is how I think. You may have a different idea.

By the way, when you see the word voluntary attached to an attribution of a government official, think income tax. The government says it is voluntary. Until you don’t file that is…

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Tags: foreclosure, New York Real Estate, real estate, Real Estate Law, short sale, trust deed

BEWARE! BEWARE! BEWARE!
I am quite sure that many of you are staying abreast of the new laws regarding dealing with sellers and properties on their way into foreclosure status. On my side of the country it is especially critical to follow all guidelines of the pre-foreclosure business. Those who are choosing to take their chance are finding themselves in JAIL. These not so new but recently enforced laws have real estate investors chasing the same agents they kicked to the curb years ago.

In Maryland, we can not make contact with any home seller who is 60 days or later past due on mortgage payments. Only a real estate agent has the authority to make such contact. Now all of the sudden real estate investors in deep negotiations with sellers who are in similar situations must immediately cease fire.

I would jump out and say that 65% or more active investors have some dealings with pre-foreclosure homeowners. On top of that, 100% of real estate investing courses promise to keep students up to speed on the latest laws and regulations surrounding the field but the information is not being taught. Government officials and local newspapers are cracking down hard on these programs and these programs are becoming the blame for transactions gone wrong. There is one case in MD where a homeowner is attempting to sue a real estate investor, the buyer, and the program through which those persons acquired their real estate investing expertise. And it seems as though they have a very strong case when looking at all of the facts.

I have just a few tips to help save you investors some trouble before it comes.

1. When initiating your conversations with sellers, immediately ask whether payments are current. If the payments are not current, kindly request that they sign an authorization to release loan information to your company and its agents to obtain an accurate picture of their mortgage. There are many times when a seller does not disclose that they are behind in payments, being notified by attorneys, are already in foreclosure. Getting the scoop directly from the lender will keep your tail out of jail.
2. Put a QUALIFIED real estate agent on your team. Agents are the only persons who can hold a conversation with a seller regardless of the position they are in. Agents are the most important piece to your pre-foreclosure business. It is called “list it and I will be your first contract on it.”
3. Either get with the new rules or get a GREAT LAWYER! If you continue to operate your pre-foreclosure business in a fashion that ignores the rules, you may find yourself behind bars. “The Foreclosure Consultant” stipulations in the Maryland State Law are very stiff and penalty heavy. Check your local laws to see what applies and what doesn’t.
4. When your real estate direct mail campaigns go out, have your agent return the calls to screen who you can and cannot talk to.
5. If you take a course on real estate investing and someone promises to tell you how to negotiate short sales, ask if they are having a lawyer on site to explain the whats, whens, and hows of the law.

Blessings to your Real Estate Investing Business,

Milton B. Yates

Tags: foreclosure law, law, pre-foreclosure, real estate investing, Real Estate Law

I have often found that many homebuyers lack a fundamental understanding about title insurance. While most past clients have admitted to briefly discussing the topic with their real estate agent, they don’t seem to understand its purpose or function–only that it will be an additional expense on the settlement sheet for which they are responsible.

What is Title Insurance?
Title insurance is a policy of insurance that protects against losses arising from defects in and/or claims against the title to property. Examples of such defects and/or claims include tax liens, easements, mechanic’s liens and ownership claims by third parties.

Lender’s Policy/Owner’s Policy
There is no legal requirement to purchase title insurance prior to acquiring a property. In practice, any lender will require you to obtain, at a minimum, a Lender’s policy of title insurance for an amount equal to the loan. This protects the lender’s investment in the event of a third-party claim. The insurance remains effective until the loan is repaid.

A homebuyer will also want to obtain its own protection of the equity in the property since a Lender’s only policy extends solely to the loan amount. This requires an Owner’s title policy for the full value of the home. Typically, the additional cost to add Owner’s coverage to the cost of the Lender’s policy is small; all the more reason for any homebuyer to get the necessary coverage. By way of example: If the sale price of a home is $500,000.00 and the homebuyer is borrowing $400,000.00—the title insurance policy would include Lender’s coverage in the amount of $400,000.00 and Owner’s coverage in the amount of $500,000.00.

Is title insurance similar to other types of insurance?
No. Most insurance policies protect against events that happen after the policy is issued, such as a car accident that happens 6 months after purchasing a new car. Title insurance in most cases protects against losses arising from events that occurred prior to the issuance of the policy. The coverage afforded by these policies typically does not extend into the future. The exception to this is certain enhanced title insurance policies, which offer coverage of a limited amount of future occurrences that are spelled out. All homebuyers should check the state in which they are buying in order to determine if such policies are available.

Is title insurance required for a refinance of the existing loan?
Yes. The lender will require you to purchase a new lender’s policy because 1.) the existing policy terminates upon the full payment of the mortgage and 2.) the lender wants to protect itself from any title issues that have arisen since you took title to the property. The good news is that you won’t need to obtain a new owner’s policy and title companies generally offer a discounted premium if your last policy was acquired within a certain amount of time.

What can I expect to pay for title insurance?
The premiums for title insurance policies are state specific. In some states, title insurance premiums include the actual insurance as well as the costs for a title search and title examination (to determine if there are any defects in the chain of title). In other states, the premium covers the insurance only and the homebuyer must also pay a third party company and/or attorney to provide the search and examination services.

Some states such as Pennsylvania and New Jersey strictly regulate rates and the premiums are the same regardless of the insurance carrier selected by the homebuyer. Other states do not regulate premiums and the homebuyer is wise to shop for the best available price.

Tags: insurance, real estate insurance, Real Estate Law, real estate title, title, title-insurance

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.

Tags: landlord, occupancy, Real Estate Law, rental-property, tenant

In July 2006, Martin Korab hired Eric Rowland, a contractor, after seeing one of Mr. Korab’s advertisements under the name “Mercury Woods Carpentry” in the telephone book. Mr. Rowland gave Mr. Korab a written proposal along with a diagram detailing a bathroom renovation project, and accepted a deposit of $3,750.00 upon Mr. Korab signing the proposal.

Thereafter, Mr. Rowland attempted to apply for a work permit and was rejected by the Hillsborough, New Jersey Building Department because he failed to register as a contractor with the New Jersey Division of Consumer Affairs. When Mr. Korab asked for his deposit monies back, Mr. Rowland refused to comply arguing that he should be compensated for his time and work in preparing the plans and applying for the work permit. Mr. Korab called the police, who determined that, neither Mr. Rowland nor Mercury Woods Carpentry was a registered contractor. Mr. Rowland advised the police that we has unaware of the registration requirement imposed by New Jersey law. Mr. Rowland was thereafter charged, by way of indictment, with violating the Contractor’s Registration Act, N.J.S.A. 56:8-136 et seq.

The Contractor’s Registration Act was adopted in 2004 (and became effective on December 31, 2005) and states that “no person shall offer to perform, or engage or attempt to engage in the business of making or selling home improvements unless registered with the Division of Consumer Affairs in accordance with the provisions of this act.” [N.J.S.A. 56:8-138(a)] The enactment of this law was a further extension of the New Jersey Legislature’s mission to protect consumers from fraudulent merchants and insure public safety—in this case, from contractors who were operating without licenses, proper insurance, and were taking peoples’ money without performing the services for which they were contracted.

Although this statute provides for regulatory relief, it also states that violations may be dealt with under the New Jersey Consumer Fraud Act (N.J.S.A. 56:8-1 et seq.), or by way of criminal prosecution. The relevant part of the statute reads: “In addition to any other penalty provided by law, a person who knowingly violates any of the provisions of this act is guilty of a crime of the fourth degree.” [N.J.S.A. 56:8-146]. It was for his failure to register with the Department of Consumer Affairs that Mr. Rowland was indicted for a fourth degree crime under this provision of the act.

The Law Division judge (which is the trial court level in New Jersey) dismissed the indictment against Mr. Rowland because the judge interpreted the statute as requiring the State to prove that Mr. Rowland knew his conduct violated the law. Since the indictment did not contain any evidence demonstrating such knowledge, the judge reasoned that the indictment could not stand.

The State appealed to the Appellate Division in New Jersey arguing that the lower court judge misinterpreted the Contractor’s Registration Act; and, the State asserted that it is not a requirement to prove that Mr. Rowland had knowledge of the law.

In rendering its decision in favor of the State, the Appellate Division found that ignorance of the law is irrelevant. The basic conduct that is prohibited by the act, and the elements that constitute the fourth degree offense, are 1.) engaging in the home-improvements business; and 2.) not being registered with the Division of Consumer Affairs. Mr. Rowland argued that without any proof that he was given notice of the law, his prosecution under the statute is a violation of due process. Relying upon other cases that have found business registration laws very common in states for the purposes of providing public safety, the Court dismissed Mr. Rowland’s argument that he was being denied due process. The Appellate Division reversed the lower court’s order to dismiss the indictment against Mr. Rowland and remanded the case for trial.

This case sends a clear message in New Jersey: Home-improvement contractors must be registered with the Division of Consumer Affairs or face the possibility of criminal penalties. While this may appear harsh, particularly given the fact that contractors will be held accountable whether or not they are aware of the registration requirement, the purpose is to protect consumers from unsafe and unscrupulous contractors.

Tags: contractor, contractor law, court, housing, law, legal, real estate investing, Real Estate Law

From the concrete streets of metropolitan cities to the sprawling suburbs in most areas around the country, new construction is present in the form of townhouses, condominiums, single homes and the ever-so-popular “over-55 communities.”

While many of these properties are esthetically impressive complete with over-sized family rooms, open kitchen areas, and every upgrade/option imaginable, there are also the unfortunate, yet inevitable pitfalls associated with new construction such as delayed completion dates, cost overruns and building defects. With respect to the latter, buyers of new construction should be informed of their legal rights in the event that construction defects impede their use and enjoyment of the property.

Responsibilities of a Vendor
Traditionally, a vendor of property is responsible for the quality of the property sold only to the extent that the vendor expressly agrees to be responsible. In years past, the notion was that a seller and buyer dealt with one another at “arm’s length” and, therefore the buyer should only be afforded the specific protection for which he/she contracts. However, in the context of new construction, the laws started to change over the past few decades. In states such as the Commonwealth of Pennsylvania, a well-established body of case law has evolved that has afforded protection to buyers in the form of implied warranties.

The “implied warranty of habitability” and “implied warranty of reasonable construction” exist between a builder-vendor of new construction and a buyer regardless of whether any mention of such warranties is actually written into the contract of sale (those huge 25-plus page contracts that builders make you sign!). These warranties, which automatically exist between builder-vendors and buyers, represent that the property is suitable for living and is constructed with a reasonable level of skill and workmanship. Further, these warranties apply whether the buyer purchases the new home prior to, during or after completion of construction.

There is Legal Recourse on New Construction Properties
So, what does this mean for those of you who are about to purchase a plush, new townhouse on a golf course? It means that you may have legal recourse in the event that the builder has improperly constructed your home and/or constructed the home with defects that make the property unfit for living. Some examples of defects that could trigger these warranties and potentially provide you with a cause of action against the builder-vendor include: severe water leakage leading to mold growth, faulty plumbing, contaminated water supply, improper foundation and faulty landfill/site development.

Even though the courts in Pennsylvania (and some other states) have consistently found that these implied warranties afford buyers of new construction protection from faulty workmanship, BEWARE…a builder-vendor could attempt to disclaim such warranties in the contract of sale. The Pennsylvania courts have ruled that a builder-vendor CAN disclaim these implied warranties but the disclaimer language must be clear, unambiguous and set forth in the contract. This means that the builder-vendor will not get away with burying the disclaimer somewhere in that bible-sized contract of sale. However, if the disclaimer language is clear, easy to find in the contract, and easy to understand, then there is a good chance that a court would uphold the disclaimer. Under that circumstance, it would be unlikely that you would prevail in asserting a claim that the builder breached one or both of these warranties. For this very reason, it is your absolute responsibility to thoroughly read your contract of sale (or at least hire a highly skilled real estate attorney to read through it for you!!). The last thing that a judge wants to hear is that you didn’t realize the builder-vendor disclaimed the implied warranties because you failed to read your contract of sale.

So, here is a little recap:

1. Builders of new construction have an obligation to make sure the property is built in a reasonable, workmanlike manner and fit for living.
2. The implied warranties of habitability and reasonable construction protect buyers regardless of the warranty provisions in the contract of sale.
3. A builder can disclaim these warranties by using clear, unambiguous language in the contract.
4. All buyers should thoroughly read through the contract of sale.
5. If your new home has significant defects and is unfit for you to live in, then you should consult an attorney to see if you have valid claims against the builder.

You are now ready to go looking for that beautiful new home…just remember, if your house has major defects, don’t back down from that big, bad builder—the law looks to protect buyers of new construction and you need to pursue all of your legal remedies!!

Tags: , , , builders, construction, estate, homes, law, New, new construction, real, Real Estate Law

Background of Property Disclosure Laws
In the wake of the consumer-rights movement and the increasing influence of realtor organizations around the country, many states began to draft and implement property disclosure laws in the 1980’s that were designed to protect buyers of residential properties. The goal was to protect uninformed and inexperienced buyers in an era where typically only sellers had agents leaving buyers to fend for themselves.

Around the country, state real estate commissions were called upon by the legislature to draft property disclosure statements that satisfied the requirements of the law in that state. The focus at that time, and still to this day, is to protect home buyers from material defects existing on the property, which are known to the seller. In most cases, “material defects” are problems with the property or any portion of the property that would have a significant adverse impact on its value or that involves an unreasonable safety risk to people on the property including the land.

In jurisdictions such as Pennsylvania, the Real Estate Seller Disclosure Law mandates that the seller “deliver” a signed and dated copy of the property disclosure form to the buyer prior to the execution of an agreement of sale. As the term is used in the statute, “deliver” means to give to the buyer by personal delivery, first-class mail, certified mail/return-receipt requested or facsimile to buyer or buyer’s agent. In practical application, a seller’s agent usually leaves several copies of the disclosure form at the property for potential buyers to take with them upon looking through the house for the first time.

Although each state typically utilizes a standard disclosure form for properties sold in that state, the disclosure laws vary from one state to another—so, buyers, sellers and agents should familiarize themselves with the disclosure requirements in their particular state.

Examples of the types of issues covered by disclosure forms include:

1. When the property was last occupied by seller;
2. Condition of the roof;
3. Structural problems;
4. Water and sewage systems or service;
5. Electrical system;
6. Heating and air conditioning;
7. Plumbing system;
8. Presence of hazardous substances;
9. Municipal violations against the property;
10. Presence of mold

What Should Sellers Do About these Disclosures?

It is imperative that both the seller and seller’s agent take a significant amount of time to go through each item on the disclosure form and provide as complete and accurate a response as possible based on the information at hand. Generally, a seller will not be held liable for an error or inaccuracy on the disclosure form, so long as the seller did not have knowledge of the error or inaccuracy. Further, most states do not require a seller to spend money to conduct various tests and investigate the current condition of the property. However, sellers (and possibly their agents) will be held liable for negligently or recklessly reporting/failing to report information or perpetrating a fraud by intentionally misrepresenting the condition of the property.

The judgments that have been awarded in cases involving violations of the seller disclosure laws include: 1.) Monetary damages to the buyer so that the misrepresented condition can be repaired; 2.) Payment of buyer’s attorney’s fees; 3.) Rescission of the contract (thereby allowing the buyer to void the transaction). I can assure you that cases involving alleged misrepresentations by sellers and overzealous agents who are trying to make a sale are on the rise. Attorneys representing buyers in these matters are becoming very aggressive in order to protect their clients’ investments. Many are seeking punitive damages against both the seller and the agent, and more and more agents are being held accountable for failing to instruct their client to disclose a known material defect of the property.

At one time we were a nation governed by the famous doctrine of “Caveat Emptor”. As times have changed, especially in the world of real estate, the consumer has become king. The laws have changed and the playing field in a lot more level—maybe, it’s time for the seller to beware.

Tags: disclosure law, property disclosure, property law, Real Estate Law, sellers