All Forum Posts by: Edward Schenkel

 If I read your post correctly, you are asking about what if there are liens prior in right to the bank's mortgage foreclosing on the property? The answer is that if there is a lien prior in right to the foreclosing bank, and it goes to sale and you end up being the successful bidder, you will take title with the liens that were prior in right. In other words, if there is a tax lien prior in right to the bank, you are taking title with that tax lien. 

 @Remigo M.: Can you repost your question? No problem, I enjoy contributing! I do a lot of foreclosure (both represent borrowers and banks) so I think I am a good person to ask. Sorry if I occasionally miss a question.

@Steve B: The only reason I see to use a Nevada LLC is perhaps there are better tax / accounting reasons to do this (I do not think so, but check with a good accountant or tax professional). If you are sued, NY Law will control unless you and the tenant agree in the lease that another jurisdiction's law will control (which would be a little bit unusual for a NY lease). There is something called "choice of law" which is an inquiry as to what state's law will control a certain lawsuit. Sometimes, for example, you have parties from different states, contracts from different states, etc. The general rule though is that if there is real estate involved in the lawsuit, the state law that controls is that where the real estate sits. Therefore, in any litigation involving NY real estate, the general rule is that NY law will apply. Therefore, in terms of "better protection" or more favorable laws applying, I disagree with the Nevada company. For the reasons I just stated, NY law should control land there is no additional legal protection provided by a NV LLC verse a NY LLC.

Now, one last thing I need to mention. I am licensed in CT and NY, but the vast majority of my practice is in CT. It is possible, but unlikely, there is some obscure law that does give a NV LLC or foreign LLC some additional protection. I doubt it, but I can't claim I know NY real estate law and corporate law inside and out. If you want to be 100 percent sure, please check with a NY lawyer too. However, I do think that I am right on this.

Does this help?

Ed

 @Matt Wehr, this is a good question. I think the question is better rephrased as what are the important provisions to include in a lease. There are many form leases available on the internet but I think most of them are not adequate. The best leases including the ones that I use, are clear and include key provisions. Here are some important things to include in a residential lease:

1. Clearly define the term, monthly payment, and security, deposit, tenant(s), landlord(s)

2. Clearly state whether there is an Option to renew. 

3. Repairs and Maintenance Provision - clearly define who is responsible for what repairs / maintenance 

4. Provision re Improvements - State what improvements, if any, tenant is allowed to make and whether landlord's consent is required. 

5. Who is responsible for utilities 

6. Landlord has right to inspect 

7. Choice of law / forum where lawsuit must be brought if there is litigation 

8. Whether Tenant may assign the lease.

9. Indemnity / Damage limitation clause (in some states may not be enforceable  or have limited enforceability)

10. Defining events of default.

11. Late fees in the event of default. 

12. Who pays insurance and taxes

13. Landlord's damages in the event of default / eviction

This is not an all inclusive list. These are just many of the things that should be included in a good lease and it is important to draft a lease clearly and account for many different situations. Also, some states may have specific disclosure requirements, e.g. lead paint disclosure. If you would like to talk more about other provisions to include a good lease, message me privately. 

I have another valuable tip regarding drafting leases I thought would benefit the bigger pocket community, If you have more than one tenant, and the tenants default or damage the property, there is a provision you can add to provide you an additional layer of protection. If you add in a provision that the tenants are "jointly and severally liable," you can go after either of the tenants for the FULL amount owed. This is important, for example, if one tenant disappeared and you could only find one tenant to sue, you can sue that tenant for the full amount owed and it would be very difficult for that tenant to argue that they are liable for only half. This is the magic language in CT and it may be the same in your state, but please check if you are outside of CT. I hope this is useful!

@Jaime Brame, Can you provide some more details? Is the property in Probate? Is it in foreclosure? When you say on the way to the courthouse, I just want to be clear before I give you my answer. 

Ed

@Gavin Carrigan, I have been involved in setting up land trusts and yes I am sure the laws do vary slightly from state to state. In terms of fees, I can only speak to what my fee would likely be in Connecticut. I keep my fee rather low because I personally believe that legal fees have gotten out of control. In CT, I would recommend setting up a single member LLC with a trust as the sole member. For reasons discussed in earlier posts, this set up is beneficial for purchasers who want to remain anonymous. The legal work (my time) would be under 500 dollars, as long as there are not unexpected unusual issues. The filing fee for the secretary of state for setting up the LLC is $150 or so (I do not have the exact figure handy, this is a ballpark) and then you need to record the deed conveying title into the land trust (assuming 2 page deed, $58.00). Now there is a tricky part of this answer in some states - the issue of conveyance tax. In Connecticut, there is a local (town) conveyance tax and a state conveyance tax. Typically, you are charged conveyance tax based on the purchase price. In this situation, since you are transferring the property from yourself into a land trust, the purchase price is 0 and generally speaking therefore there is no conveyance tax. In, CT, there is also an exemption that you can argue applies where the exemption applies if you are simply reorganizing with no change of beneficial interest. Arguably, this applies. Check your state for conveyance tax rules - In theory you could get hit with a conveyance tax, but I think most states would not levy conveyance tax in this situation.

The question about activating the acceleration clause in the mortgage - I think my response to an earlier post also applies here. Technically, under the mortgage deed, it is standard for the bank to include a provision that provides any conveyance of any interest without consent of the bank is a default and grounds for acceleration. So, technically, the answer is yes - it is a violation of the mortgage deed and in theory, the bank could foreclose on this basis. In practicality, however, the bank is only concerned about getting paid each month and that it has adequate security. So if you do convey it to the land trust and you are current on the payments and the property is in good condition, I think it is unlikely the bank will care. If you want to be safe, I would tell the bank and get their consent. 

Does this help?

Ed

 Looking forward to it. 

 @Alex Dem, interesting question. I think as long as every detail is disclosed (e.g. that you are a real estate agent looking to invest in property, that you have a relationship with the attorney, that you do not represent the heirs as the listing agent, that they should fee free to contact a real estate agent, etc., I think you should be ok. These things get very specific though and I think you should check with me or another lawyer before signing a contract. I would think it is generally ok as long as there is full disclosure. Again, talk to me or another attorney before signing a contract. 

 @Gretchen Place and @Filipe Pereira, this is a good question. As mentioned in an earlier response, certain types of agreements "run with the land" and certain types of agreements are personal in nature. Agreements that run with the land are binding on future owners, and typically consist of things like easements, leases, covenants, and so forth. For example, if there is an easement that gives your neighbor the right use your driveway, typically the next owner of your home will also be required to allow your neighbor to use your driveway. Also, another legal term from "running with the land" is "touching and concerning the land."

If the agreement does not run with the land, it is considered personal in nature and is not binding on any future land owner and is only binding on the parties that enter into the agreement. For example, if you have a contract with the plow guy down the street to shovel your driveway each winter, this is generally personal in nature and will not be binding on the family you sell your home too. 

With that being said, the question you ask is really - how do you tell if an agreement runs with the land (such as a driveway easement) or is personal in nature (such as the plow guy contract to shovel snow)? There is a test, and it might vary slightly state to state, but it really depends on the intention of the parties, the nature of the agreement, and how it impacts the property's value. Here is an excerpt (edited slightly by me) from an Appellate Court case in Connecticut that discusses the test:

"If an agreement is personal, it cannot be said to have run with the land and thus cannot have bound the future grantee....For purposes of the distinction between real covenants (running with the land, or touching and concerning the land) and personal covenants, a covenant may run with the land or may be a matter between only the purchaser and grantor. If the covenant does not touch or concern the occupation or enjoyment of land, it is the personal obligation of the grantor or lessor and does not run with the land. 21 C.J.S. 359–60, Covenants § 32 (2006). A covenant that touches and concerns the land can be one that either calls for doing either physical things to the land, or refraining from doing physical things to the land. 21 C.J.S., supra, p. 359. Whether a promise with respect to the use of the land is real (runs with the land) as compared with personal depends upon the intent of the parties and the promise, to be determined in light of the circumstances.  If it touches the land to the extent it materially affects the value of that land, it is generally to be interpreted as a covenant that runs with the land. A covenant in a deed which restrains the use to which the land may be put in the future as well as in the present which might very well affect its value, touches and concerns the land..."

As you can see, it is fact specific but generally the court looks to the intention of the parties, the impact of the agreement on future use, and whether it impacts the value of the property. With that said, I do not think there is any clear answer to your question whether the utility agreement runs with the land or is personal in nature, but typically these types of agreements are more akin to a maintenance agreement and are personal in nature and do not run with the land. You should try to review a copy of the agreement before the closing. For example, if the agreement says that it is the intention of both parties for this agreement to run with the land, then there is an argument it does. As stated earlier, agreements that run with the land are typically recorded (or perfected, is the legal term) and some states may have requirements that something must be recorded to run with the land. In Connecticut, although that is the general rule, there are some exceptions, so it is not a set in stone requirement. 

I think if the utility agreement is not a deal breaker then you should proceed with the closing. If you can, perhaps try to get an indemnity agreement from the seller saying that the agreement is personal in nature, and will indemnify and hold you harmless if in fact you try to terminate the agreement with the neighbor and the neighbor will not allow you to claiming it runs with the land. If you cannot get this, then it is your call whether to proceed with the closing (and this may or may not be grounds to get out of the contract - ask your lawyer) but it sounds like it will not be a deal breaker. I also agree with a previous post that a credit is another option to consider. 

I think this is a great question generally - what type of things run with the land and do not run with the land. This post will hopefully educate the biggerpockets community on this issue and I hope it was helpful. If anyone has any follow up questions, let me know.